KEY INSIGHTS The foundation of an effective debt compliance program is a comprehensive and prioritized covenant checklist—but that’s easier said than done. Lenders have two objectives: preserve the status quo at debt [...]
We find that Treasuries justify weak practices because they assume that the default risk is small and they trivialize the consequences, thinking only that their friendly lenders would be forgiving of any technical default. [...]
Arguably, the worst job in treasury is debt compliance. Contained within those voluminous and dense debt agreements are scores of promises that must be kept to avoid default and the loss of [...]
A primary treasury objective is to maintain and maximize access to the capital and debt markets at the lowest cost - which means consents before the fact rather than waivers after the fact. And since “stuff happens,” treasury needs to pro-actively talk to the lenders about current problems, issues, or potential events that might affect access to those markets.
Did you know many CFOs sign the quarterly certificate without a process that confirms and documents the compliance with all of the agreements’ covenants? Add to that, most companies have difficulties accurately understanding and interpreting their agreements in the first place.
Global corporate defaults reached 104 in 2016 - the fastest pace of defaults since the financial crisis in 2009. CNBC says that S&P expects the U.S. corporate trailing-12-month speculative-grade default rate to rise to 5.1 percent by September 2017.
Debt compliance risk may be the most overlooked enterprise liability a company faces. It’s rarely mentioned in any enterprise risk list, yet, a covenant violation can shut down a company, destroy its reputation, and crater its market cap.