Financial Covenants - The Impact of Accounting Practice

In addition to your class tuition and study materials, you will receive the following:


Case Study

• Mini-case studies looking at the impact of accounting policy choices and a review of dummy agreement clauses

Other Extras

• Certificate of attendance

Level: Intermediate


Synopsis:
In these days of heightened awareness of the need for early warning signs of credit risk, the need to understand the impact of accounting practice on the drafting and interpretation of financial covenants has never been so important.This course provides you with a vital insight to the impact of the accounting choices allowed under international GAAP and draws comparison with UK and US GAAP to provide a fuller understanding when working in a global context.


At the end of the course participants will be able to: Understand the financial language associated with financial covenants . Disaggregate major financial covenants and identify where the relevant component information can be found within financial statements . Understand the impact of accounting choices under IFRS and UK GAAP on financial covenants .


Prerequisites:
A full grasp of accounting fundamentals such as the typical contents of a company balance sheet and income statement.


Suitable For:
Banking and finance lawyers, members of corporate legal teams and company decision makers who need to understand the implications of accounting policy decisions on the security of corporate finance.


The concept of a financial covenant

• Financial limits and financial ratios

Understanding the concept of financial statement articulation so as to avoid the 'bear trap' of the knock-on effect
The risk of not understanding the implications of accounting policy choice on covenant default

• Awareness of international accounting convergence issues particularly on disparate groups and cross border agreements

Covenants linked to operating performance

• EBIT, EBITDA and EBITDAR
• The impact of: non-recurring items, discontinued operations, the impact of financial instrument classification, non-current asset revaluation and impairment, pension costs

Covenants linked to financial structure

• Gearing
• Debt and equity classification
• Deferred tax
• Net debt
• Interest cover -Capitalisation of finance costs

Balance sheet measures (net assets etc.)

• Off balance sheet strategies

Covenants linked to cash

• The advantages of covenants benchmarked to cash
• What is free cash?
• Mapping EBITDA to operation cash

Considerations when setting covenants