ModeldrillLeverage and interest cover covenants
A financial modeling exercise from Modeldrill. Solve it with a live spreadsheet grid in your browser, with Fill right and Fill down, and it is checked the moment you submit.
The task
Lenders track two ratios. Fill net debt to EBITDA (row 10: debt less cash, over EBITDA), interest cover (row 11: EBITDA over interest expense) and a covenant test (row 12) that shows "Pass" only when leverage is at or below the maximum in B2 and cover is at or above the minimum in B3, and "Breach" otherwise.
What this exercise teaches
Leverage falls when EBITDA grows or debt is repaid; cover falls when rates rise. A model that tests both every year shows the first period in which a downside case would trip a covenant.
A hint if you get stuck
Net debt is debt less cash, so the subtraction needs brackets before dividing by EBITDA. The test is an IF around AND, with both covenant levels locked.
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