- CFA Exams
- CFA Level I Exam
- Study Session 15. Fixed Income (2)
- Reading 47. Fundamentals of Credit Analysis
- Subject 6. Special Considerations of High-Yield, Sovereign, and Municipal Analysis
CFA Practice Question
What covenants are most likely in an issuer's bank credit agreements?
A. Restricted payments
B. Limitations on additional indebtedness
C. Maintenance covenants
Explanation: Banks often require high-yield issuers to maintain certain financial standards. These can include various metrics such as:
- Senior debt / EBITDA must be less than 3x
- EBITDA / Interest expense cannot fall below 3x
- Total debt / EBIT cannot exceed 2x
- Senior debt / EBITDA must be less than 3x
- EBITDA / Interest expense cannot fall below 3x
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