12 Steps for Treasury to Take to Avoid a Debt Compliance Default Checklist

While Treasury is not responsible for poor operating results, Treasury is responsible for managing lenders and senior management about these high probability covenant issues to maintain the company’s access to funding at the lowest possible cost. Treasury can only do this if it has a strong debt compliance process that comprehensively manages the current quarter, gathering information about existing and potential covenant issues so that they can be monitored, managed and mitigated in future quarters. There can be only one debt compliance objective: no surprises to your CFO, CEO and lenders! We’ve done the work and developed a 12-Step Checklist Treasury can take to mitigate its risk of causing default. Download 12 Steps for Treasury to Take to Avoid a Debt Compliance Default and sleep better at night.

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Debt Compliance Policy Best Practices

Debt Compliance Policy Best Practices is a comprehensive policy that describes the objectives, the participants, their responsibilities, and the processes for achieving these debt compliance objectives:

  • Why the company has a legal and SOX obligation to review compliance with all of its covenants in all of its agreements
  • Identifying and understanding all of the debt covenants
  • Integrating the covenants’ restrictions into the company’s operations and planning
  • Determining quickly and accurately the company’s quarterly debt compliance
  • Identifying and mitigating emerging covenant issues to minimize the risk of future covenant violations
  • Proactively managing senior management and lenders about significant potential covenant issues to eliminate surprises and minimize the lender consequences
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Human Risks and Management Challenges

It’s no secret, debt compliance is an arduous task, a task that is often easy to procrastinate. The vast number of complex covenants makes it difficult to have control of the many moving parts in the process. Yet, many companies today do not have a debt compliance process in place to fully understand the agreements for the quarterly CFO Certification Letter.

Partially a consequence of the good old days of “cheap and easy credit,” many companies have limited debt compliance processes that focuses are a limited number of “headline” covenants: ratios, baskets and perhaps some non-financial covenants. While the very nature of debt agreements – they’re complicated and voluminous – calls for process implementation, few companies have the time, expertise or technology to spend the man-hours setting up rock-solid processes for the quarterly and annual debt compliance responsibilities. Download our white paper, Treasury’s Debt Compliance Responsibilities, and ensure your processes are complete.

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Managing Treasury’s Core Debt Compliance Responsibilities

Topics Covered
1. Core Debt Compliance Responsibilities
2. Your three kinds of default risks
3. Minimizing default risk with DCS

Treasury’s debt compliance responsibilities are:

  • Minimize the company’s default risk
  • Maintain and enhance access to Capital Markets at lowest after-tax cost by maintaining and improving lender confidence with proactive communication
  • Satisfy the quarterly Officer’s Certificate requirements
  • Justify the classification of the debt as long-term
  • Avoid stock market losses due to a default announcement
  • Treasury’s Debt Compliance Responsibilities
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Truth or Consequences: Understanding Default Risk and its Ramifications White Paper (Download)

Topics Include

  • What happens in a default
  • How default risk increases over time
  • How to estimate technical default risk
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