Instead, we write simple yes/no retrospective and prospective questions about the covenant’s required or prohibited action. We ask:
- What are the facts of what happened or didn’t happened?
- And would the facts change in the foreseeable future?
Our reports link directly to covenant text in the DCS Debt Manager℠ generating the question. It’s then the Compliance Team’s job to evaluate the facts against their interpretation of the covenant text to determine how the facts should be managed. Our process generates false positives, which is exactly what you do want in a compliance process.
For example, we do not ask “Was there a material asset sale?”. How could any respondent really know what is material? Instead, we ask the respondent to report the details of any asset sale for the Compliance Team to evaluated, including other asset sales. If there is an asset sale, then we we ask the asset sale’s dependent covenants, such as reporting to lenders, providing a reinvestment plan, etc.