Net information ratio meaning

Financial covenants feature across many types of banking deal to monitor and assess the financial performance of the borrower company or group. This Practice Note outlines the role of financial covenants within leveraged finance. It covers: the meaning of financial covenants how financial covenants operate in leveraged finance transactions the covenant package typically used on a classic leveraged finance transaction the methods for testing financial covenants other applications of financial ratios, and equity cure, mulligan and deemed cure provisions See the Glossary of acquisition finance terms and jargon for definitions of certain expressions used in this Practice Note. What are financial covenants? Undertakings (also called ‘covenants’) are promises from the borrower (and sometimes other members of the borrower’s group) to the lender about carrying out, or refraining from, particular actions. Financial covenants are a distinct category of covenant or undertaking. They are commitments to achieve or maintain specified financial thresholds. Financial covenants allow the lender to...

Banking & Finance glossary A Auditing and Accounting Organisation for Islamic Financial Institutions (AAOIFI) The foremost Islamic, international, autonomous, independent, not-for-profit corporate body that develops and issues accounting, auditing, governance, ethics and Shari’ah benchmarks and standards for Islamic Financial Institutions (IFIs) and the wider Islamic finance sector. Founded in Bahrain in 1991, it is backed by a number of institutional members across more than 45 countries, including central banks and regulatory authorities, financial institutions, accounting and auditing practices, and legal firms. Its pronouncements are currently applied by leading Islamic financial institutions across the world and have advanced a progressive and gradual harmonisation of global Islamic finance practice. It also delivers professional qualification programmes—notably Certified Islamic Professional Accountant (CIPA), Certified Shari’ah Adviser and Auditor (CSAA), and the corporate compliance programme—in efforts to strengthen the industry’s human capital and governance frameworks. For further details, see Practice Note: Key participants in the Islamic finance industry—Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI). Acceleration Acceleration is the formal action...

This Practice Note serves as a primer on financial covenants (financial undertakings). It outlines the rationale for using financial covenants, then describes how they are established and measured. It also covers the typical financial covenants seen in commercial finance, such as: minimum net worth test gearing ratio leverage ratio (or debt to equity ratio) current ratio (or acid test ratio) cashflow ratio interest cover ratio loan to value ratio Note that this Practice Note does not delve into financial covenants for specialist transactions in detail. The final section, however, signposts additional resources on applying financial covenants across various specialist transactions. Where relevant, it draws attention to provisions in the Loan Market Association (LMA) senior multi-currency compounded rates/term rates term and revolving facilities agreement for leveraged acquisition finance transactions (the LMA leveraged facilities agreement) (available to LMA members on the LMA website). Note also that the LMA investment grade facility documentation omits financial covenants because they are considered too...