Draft financial covenants and reporting terms for a loan
Covenants calibrated to the borrower's numbers, with cushions, definitions, test dates, and reporting requirements ready for a term sheet.
The prompt
Help me set financial covenants and reporting requirements for a loan I am structuring.
Borrower profile: [industry, size, stability of earnings, seasonality]
Facility: [type, amount, term, secured or unsecured]
Historical and projected figures: [PASTE EBITDA, debt, fixed charges, capex, net worth by year or quarter]
Our credit policy guidance: [e.g. "minimum FCCR 1.20x", "max senior leverage 3.0x"]
How tight we want to be: [light-touch / standard / tight - and why]
Give me:
1. Recommended covenants (e.g. fixed charge coverage, debt service coverage, total or senior leverage, minimum liquidity, tangible net worth, capex limit), each with:
- Proposed level and the cushion versus projections (aim for a stated cushion, e.g. 15-25% off the base case)
- Testing frequency and whether it is trailing twelve months
- A plain-English definition of each component, noting common disputes (EBITDA add-backs, treatment of distributions, unfinanced capex)
2. A table showing each covenant level against the projected figures for each test date, and where headroom is thinnest.
3. Reporting requirements: financial statements (and level of assurance), compliance certificate, borrowing base if relevant, timing after period end.
4. Negative covenants worth including for this borrower (additional debt, distributions, change of control).
5. Early-warning triggers we should monitor between test dates.
Do not invent numbers; mark missing inputs [CONFIRM]. Final language should be drafted or reviewed by the bank's counsel.
Highlighted [brackets] are blanks to replace with your own details.
Fill in the blanks and use this promptMore Finance & Accounting prompts
What to fill in
- industry, size, stability of earnings, seasonality
- type, amount, term, secured or unsecured
- e.g. "minimum FCCR 1.20x", "max senior leverage 3.0x"
- light-touch / standard / tight - and why
- CONFIRM
How this prompt is built
This prompt follows the Few-Shot structure (Few-shot prompting). A few-shot prompt includes one or more worked examples of the input and the output you want, so the model can copy the pattern instead of guessing it.
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