Finance Tools
Cost Shock Covenant Headroom Calculator
Estimate whether a cost shock could trigger a loan covenant breach by reducing EBITDA and worsening Net Debt / EBITDA leverage.
Estimate whether a cost shock could trigger a loan covenant breach by reducing EBITDA and worsening Net Debt / EBITDA.
Total debt minus cash (approx).
Used as the covenant denominator.
Example: 3.50 means must be ≤ 3.50x.
Pick % if you’re modeling margin compression.
Example: 20.00% means EBITDA drops by 20%.
EBITDA
Before: $2,000,000
After: $1,600,000
Leverage (Net Debt / EBITDA)
Before: 3.00x
After: 3.75x
Headroom vs covenant limit
Limit: 3.50x
Headroom before: +0.50x
Headroom after: -0.25x
Headroom = limit − actual. Negative means breach.
Risk flag
Breach risk: leverage exceeds covenant limit.
This tool models a common leverage covenant: Net Debt / EBITDA must stay below a limit. A cost shock can reduce EBITDA, increasing leverage.
How it works
- Leverage ratio = Net Debt ÷ EBITDA.
- Cost shock reduces EBITDA → ratio increases.
- Headroom = covenant limit − actual ratio.
- If actual ≥ limit, the covenant is breached (in this simplified model).
FAQ
Is “Net Debt / EBITDA” always the covenant?
No—some loans use Total Debt / EBITDA, Fixed Charge Coverage, or other tests. This tool targets the most common leverage covenant.
What if net debt changes too?
This tool holds net debt constant. If you expect borrowing to increase, raise net debt accordingly and re-run.
How to use this cost shock covenant headroom calculator
- Enter net debt and baseline EBITDA.
- Choose how to model the shock: EBITDA % decrease or EBITDA $ decrease.
- Enter your covenant limit for Net Debt / EBITDA.
- Review leverage before vs after and headroom (limit minus actual).
Example
Net debt $6,000,000, EBITDA $2,000,000, EBITDA drops 20%, covenant limit 3.50x.
- Leverage before = 6,000,000 / 2,000,000 = 3.00x
- EBITDA after = 2,000,000 × (1 − 0.20) = 1,600,000
- Leverage after = 6,000,000 / 1,600,000 = 3.75x
- Headroom after = 3.50x − 3.75x = −0.25x (breach)
More tools in Finance Tools
- Farm Debt Risk Calculator
Estimate farm debt risk using key ratios like debt-to-asset, debt-to-income, and DSCR to flag financial stress.
- Cost Shock DSCR Impact Calculator
Estimate how an increase in operating costs impacts EBITDA, DSCR, and loan covenant risk under different cost shock scenarios.
- Oil Futures Margin & Risk Calculator
Estimate margin requirement, notional exposure, leverage, and risk per move for an oil futures position using contracts, contract size, price, and margin rate.
- Cost Shock Interest Coverage Ratio Impact Calculator
Estimate how a cost shock reduces EBIT and worsens the interest coverage ratio (ICR = EBIT / interest expense).