Did you know many CFOs sign the quarterly certificate without a process that confirms and documents the compliance with all of the agreements’ covenants? It’s true. And given the high probability of a covenant violation for less than investment grade companies, that’s scary since a default can devastate a company and ruin lives.

If a less than investment grade company does not have a thorough debt compliance process, which at a minimum, must include a comprehensive covenant checklist covering all of their agreements, there is a gap in their internal control framework that could lead to being cited by auditors for a SOX deficiency or a SOX material weakness.

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-solidprocesses for the quarterly and annual debt compliance responsibilities.

 

Why does this matter? For many treasuries today, their core treasury responsibility is their credit facilities available on the best possible terms. Technical defaults can lead to high waiver and amendment fees, increased spreads, and imposition of onerous new conditions – often resulting in legal and audit fees exceeding $300,000, a figure dwarfed by the decline in the stock price when an 8-K is issued announcing the default.

 

Through more than 40-years of experience in the financial and treasury c-suites, the DebtCompliance 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.

 

DCS creates a powerful search engine that covers all debt agreements simultaneously, with contextual information, allowing for quick navigation to hone in on relevant pages and research pertinent provisions, fast and accurately. In addition, Debt Compliance Services creates intelligent digital debt agreements by parsing your debt agreements into small, logical webpages with hyperlinks to all agreement sections, cross-references, and defined terms. The webpages allow commenting and uploading files. Your agreements become living, breathing documents, sharing hard-earned knowledgeable to all treasury and legal parties involved.

Debt Compliance Services pricing can be capitalized and the system can be implemented in under 60 days. Retain control of your debt compliance process and eliminate the domino effect.

The Human Risks and Management of Debt Compliance

Understanding the human risks and management of debt compliance is key to ensuring an organization is up-to-date with SOX compliance and the dynamic world of debt compliance. Take control of your process now.

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