Covenant Compliance Certificate Template (Leverage, Interest Cover, DSCR)

Covenant Compliance Certificate: [Borrower name] as at [Test date]

Periodic compliance certificate that a borrower delivers to the agent (or directly to the lenders) under a loan or facility agreement that contains financial covenants: facility and test date details, the clause references for each financial definition, leverage, interest cover, debt service cover, minimum liquidity and capital expenditure calculations, the bridge from reported EBITDA to covenant EBITDA, headroom and trend, guarantor coverage, margin ratchet, confirmations and signatures. Written as original practice guidance for syndicated and bilateral facilities documented in the style of the Loan Market Association (LMA) or Loan Syndications and Trading Association (LSTA) forms, which are cited by name only; the facility agreement you signed always prevails over this template. Replace every [bracketed] value and every row marked Example. This is a document format, not financial, legal, tax or accounting advice.

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Contents

1. Certificate summary
2. Facility and test date details
3. Financial definitions reference
4. Leverage
5. Interest cover
6. Debt service cover
7. Other financial covenants
8. EBITDA adjustments reconciliation
9. Headroom analysis and trend
10. Guarantor coverage test
11. Margin ratchet
12. Confirmations
13. Preparation and review workflow
14. Signatories and auditor report
15. Breach, cure and waiver procedure
16. Glossary and references

1. Certificate summary

To: [Agent name], as agent under the facility agreement referred to in section 2.

From: [Borrower name], for itself and on behalf of each obligor.

Date: YYYY-MM-DD

We refer to the facility agreement. This is a compliance certificate delivered under clause [clause number]. Terms defined in the facility agreement have the same meaning here unless this certificate states otherwise. We set out below the financial covenant calculations for the relevant period ending on the test date, together with the confirmations the agreement requires.

Example: Corvid Commerce Group met every financial covenant for the twelve months to 2026-12-31. Covenant EBITDA of EUR 17,800k includes two add-backs permitted by the agreement (restructuring cost of EUR 900k for the Vietnam warehouse consolidation, within the 10% cap, and a non-cash share-based payment charge of EUR 500k) and excludes a EUR 400k gain on disposal of fixed assets. The leverage ratio places the margin in the lowest grid level from the next interest period (section 11). No default is continuing (section 12). Both facilities mature on 2028-06-30; the group has approved a refinancing to be signed by 2027-06-30, and the certificate for the test date 2027-06-30 will report its status.

2. Facility and test date details

2.1 Facility summary

2.2 Period and accounts used

The certificate is prepared on the accounting basis that the agreement fixes. Where the agreement freezes accounting principles at signing, compute every figure on that basis and keep a reconciliation from the current accounts. IFRS 18 Presentation and Disclosure in Financial Statements applies to annual periods beginning on or after 2027-01-01; it changes subtotals and introduces management-defined performance measures. Agree with the agent before the first affected test date whether the covenant definitions need an amendment or whether the frozen-basis clause covers the change.

3. Financial definitions reference

Write each summary so that a lender's analyst can rebuild the figure from the schedules without reading the agreement. If a definition requires judgement (for example, whether a cost is exceptional), say so here and explain the judgement in section 8.

4. Leverage

Example: The management accounts show net debt excluding leases of EUR 2,000k (term loan EUR 30,000k less cash EUR 28,000k). The covenant figure is higher because the agreement includes lease liabilities of EUR 8,000k and excludes EUR 1,000k of cash held in a customer deposit account in Vietnam that cannot be swept to the group: 2,000 + 8,000 + 1,000 = 11,000. Check: 30,000 + 8,000 - 27,000 = 11,000; 11,000 / 17,800 = 0.618, shown as 0.62x.

Explain any currency translation of debt. If debt is in a currency other than the reporting currency, state the rate the agreement requires (often the closing rate, sometimes the rate at the date of drawing) and the source of the rate.

5. Interest cover

Check: 1,200 + 70 + 310 - 280 = 1,300, which agrees to the net finance cost of EUR 1,300k in the FY2026 latest estimate. When the two numbers differ, reconcile them in a footnote so the agent sees why.

6. Debt service cover

Check: 17,800 - 900 - 1,500 - 2,400 - 8,200 = 4,800; 1,300 + 0 + 1,500 = 2,800. The term loan is a bullet repayment on 2028-06-30, so no scheduled principal falls in the period. In the 12 months before maturity this ratio would collapse if the final bullet counted as Debt Service; most agreements exclude it, but read your definition. The more immediate effect is on the accounts and on liquidity: at 2027-12-31 both facilities will have less than 12 months to run, so the term loan becomes a current liability and the undrawn revolving facility stops counting as headroom under the Treasury Policy (finance/treasury-policy). The refinancing is therefore targeted for signature by 2027-06-30 in the Liquidity and Funding Plan (finance/liquidity-funding-plan).

7. Other financial covenants

7.1 Minimum liquidity

Check: 27,000 + 20,000 = 47,000; 47,000 - 15,000 = 32,000. The EUR 15,000k is the contractual covenant floor. The group's own minimum is higher: the Treasury Policy sets a minimum liquidity headroom of EUR 35,000k, measured as unrestricted cash plus undrawn committed facilities with more than 12 months to maturity, and on that definition the position at 2026-12-31 is also EUR 47,000k. Report the covenant figure here and the policy figure in the treasury report, and label both, so that readers do not see two different "minimums" without explanation.

7.2 Capital expenditure

Check: 14,000 + 0 - 8,200 = 5,800; 50% x 5,800 = 2,900. Capital expenditure is the amount paid in the year per the audited cash flow statement (EUR 8,200k), not the latest estimate of EUR 9,500k shown in the FY2027 budget pack, which was a forecast made before year end. Use the agreement's measure (paid or incurred) consistently from year to year. The FY2027 budget plans capex of EUR 12,000k, within the FY2027 limit of 14,000 + 2,900 = EUR 16,900k if the limit is unchanged.

7.3 Loan to value and other tests

Where a covenant applies only at a certain date (for example a capex limit tested annually), say so, and state "not tested this period" rather than leaving a blank row.

8. EBITDA adjustments reconciliation

Check: 8,600 + 5,600 + 2,600 = 16,800; 16,800 + 900 + 500 - 400 + 0 = 17,800.

8.1 Cap test on exceptional items

The exceptional add-back of EUR 900k is below the cap of EUR 1,680k. Keep the board paper that approved the restructuring and the invoices as evidence; lenders often ask for them at the annual test.

8.2 Judgements

When reported EBITDA is a management-defined performance measure under IFRS 18 from 2027 onward, keep the covenant bridge separate from the MPM reconciliation in the accounts. They have different purposes and often different adjustments.

9. Headroom analysis and trend

For a maximum covenant such as leverage, EBITDA headroom is the fall in EBITDA that would take the ratio to its limit, with net debt unchanged:

For a minimum covenant such as interest cover:

For debt service cover, Cashflow headroom is one minus the minimum Cashflow (1.20 x 2,800 = 3,360) divided by actual Cashflow of 4,800, which is 30.0%.

Define the colours in your treasury policy, for example green above 30% headroom, amber between 15% and 30%, red below 15%. Report amber or red to the CFO and the board immediately, not at the next certificate. The forward view comes from the rolling forecast and the 13-week cash flow forecast; show at least the next two test dates.

DSCR is the tightest covenant in the example even though leverage is low, because capital expenditure is deducted in full. A year of higher investment, as planned in the FY2027 budget (capex EUR 12,000k), would reduce Cashflow; model it before committing to the spend.

10. Guarantor coverage test

Gross assets exclude investments in and receivables from other group companies. If the agreement says loss-making entities count as zero, recompute; in the example that would raise guarantor EBITDA to 17,000 and group EBITDA to 18,500, giving 91.9%. State which method your agreement uses.

11. Margin ratchet

Example: Leverage of 0.62x puts the group in the lowest band. The new margin applies from the first day of the interest period starting after the agent receives this certificate. If any Event of Default is continuing, the agreement may require the highest margin regardless of the ratio; confirm in section 12.

If the facility also contains a sustainability-linked margin adjustment, report the key performance indicators and the verifier's report in a separate schedule; do not mix them into the financial covenant tables.

12. Confirmations

If a default is continuing, do not omit or soften it. Describe it, state the steps being taken to remedy it and refer to any waiver request (section 15). A false confirmation is usually itself an Event of Default (misrepresentation) and may expose the signatories personally.

12.1 Default questionnaire

Send a short questionnaire to each obligor's finance lead and to group legal before every certificate. Ask about litigation, tax disputes, security over assets, new borrowings, guarantees, cross-default in other agreements, insolvency events, changes in ownership, breaches of sanctions or anti-corruption undertakings, and late statutory filings. Keep the answers with the certificate file.

13. Preparation and review workflow

13.1 Review checklist

• Every figure agrees to the accounts or to a schedule that agrees to the accounts.
• Every definition used is the one in the agreement as amended, with the clause reference.
• Every adjustment in section 8 has evidence and is within any cap.
• Cash netted in section 4 is freely available and not pledged or trapped.
• Exchange rates follow the agreement.
• Ratios are rounded as the agreement requires, and never rounded in the borrower's favour where the agreement is silent.
• The headroom trend and forecast were shown to the CFO before signing.
• The margin ratchet level and its effective date are stated.
• The signatories are authorised under the delegation of authority and the agreement.

13.2 Common errors and how to avoid them

The most frequent error is a definition drift: the workbook was built for the first certificate, the agreement was later amended, and nobody updated the formulas. Prevent it by keeping a definitions log that lists each amendment letter, the clause it changed and the workbook cell it affects, and by having legal sign that the log is complete before each annual certificate.

The second error is inconsistent period figures. Rolling 12-month EBITDA must be built from four quarters that each agree to a closed set of accounts; avoid mixing a forecast month into the period because the close is late. If a prior quarter was restated, state whether the agreement requires the restated figure and, where it does, show the effect on earlier certificates.

The third error is cash that is not really available. Cash in a country with exchange controls, cash collateralising a guarantee, customer deposits held on trust and cash in a joint venture usually do not count. Ask the treasury team for a list of every bank account with its restrictions at the test date, not only the consolidated balance.

The fourth error is presentation: ratios computed correctly but explained poorly, so the agent asks questions that delay the margin change or create doubt. Write the summary paragraph in section 1 as if the reader had never seen the group's accounts, and answer the obvious questions before they are asked.

Finally, keep the full working file (workbook, evidence, questionnaires, signed PDF and delivery email) for at least the life of the facility plus the limitation period that applies under the governing law. Lenders and auditors may ask for it years later, for example in a refinancing or a dispute.

14. Signatories and auditor report

Signed for and on behalf of [Borrower name] as obligors' agent:

14.1 Auditor report (annual certificate, if required)

Where the agreement requires the auditors to report on the annual certificate, agree the engagement terms early. Auditors usually perform agreed-upon procedures or a limited assurance engagement on the arithmetic and on the agreement of figures to the audited accounts; they do not usually opine on whether an add-back is permitted. Attach the report and record its date here.

15. Breach, cure and waiver procedure

Equity cure clauses, where present, usually let shareholders inject new equity or subordinated debt that is then treated as reducing net debt or increasing EBITDA for the test. They are typically limited in number and cannot be used in consecutive periods. Read your clause carefully and record any use here with the amount and the test date it cured.

16. Glossary and references

16.1 Glossary

16.2 References

Standard and licence note

Structure aligned with common borrower practice for compliance certificates under syndicated and bilateral facilities documented in the style of the Loan Market Association and Loan Syndications and Trading Association recommended forms. Those forms, the ACT borrower's guide and IFRS 16 and IFRS 18 are cited by name (and, for IFRS 18, effective date) only; no wording from any of them is reproduced or adapted. IFRS is a trade mark of the IFRS Foundation; this template is not affiliated with or endorsed by the IFRS Foundation, the LMA, the LSTA or the ACT. The facility agreement you signed prevails over this template. Corvid Commerce Group, Fernhollow Bank and every figure are fictional. This template is original text written for this collection. Check the current official versions of cited documents before use. Template licence: MIT.