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. As a result, firms are forced to spend more money for legal bills and risk divergent interpretations and dedicate more time answering repetitive questions to avoid the devastation of default. Multiply all that by the number of debt agreements an organization has, and it’s a nightmare.
While volatility in emerging market financial sectors continues, it’s paramount that organizations have a reliable process in place to confirm and document debt compliance. While many organizations lean on in-house solutions, such as checklists, it creates an unreliable process because the checklist is often incomplete – focusing only on a few affirmative and negative covenants sections of the agreements. In addition, in-house processes often ignore “minor” covenants because it’s assumed the lenders will forgive a company for small violations. That’s scary considering the consequences of default – public disclosure, stock price craters, loss of control to the lenders and auditors, and customer, vendor and employees concerns.
Understandably, calling a default is a sticky situation – as soon a firm finds it has a covenant violation, the Treasurer, CFO, General Counsel, and CEO need to know if the violation is material enough to report the violation to the lenders immediately. Not reporting a material violation means that the firm can be liable for fraud.
In an effort to mitigate risk, Debt Compliance Services has a suite of three web-based services: DCS Document Manager℠, DCS Questionnaire Manager℠, DCS Calendar Manager℠ that creates a simple, cloud-based process for creating a checklist, implementing questionnaires, evaluating covenant issues, and scheduling payments and document deliverables.
- DCS Document Manager℠ converts Debt agreements into easy-to-navigate webpages, linking defined terms and section references, and creates a checklist for monthly, quarterly, and annually reporting.
- DCS Questionnaire Manager℠ hosts web questionnaires based on the covenant checklist and are assigned to key finance and business stakeholders at HQ Finance, other HQ departments, and business units
- DCS Calendar Manager℠ allows all regular deliverables and payments to be scheduled to the actual business day each debt’s maturity is due.
Through more than 40-years of experience in the financial and treasury c-suites, the Debt Compliance Services founders have devised a system that reduces the probability of an unexpected default by 90%. Why? Because technical default is controllable with thorough knowledge of all covenant requirements and the implementation of a comprehensive process.