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FinServ PartnersFinServ PartnersFinServ Partners
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Patia, Bhubaneswar, Odisha - 751017, India
FinServ PartnersFinServ PartnersFinServ Partners

Covenant Testing

Covenant Testing

Debt covenants are terms of the debt agreement (Indentures) raised from banks or public debt markets. There are three types of covenants- Affirmative covenants, Negative covenants, and Financial covenants.

  • Affirmative covenants require that the borrower undertake certain things, such as regularly submitting financial statements to the lender, keeping insurance policies in check, etc.
  • Negative covenants restrict the borrower from doing certain things, such as taking on additional debt, selling assets, etc.
  • Financial covenants require that the company maintain certain financial metrics in a given range, such as maintaining a minimum Interest coverage ratio, a minimum debt/EBITDA ratio, etc.

Ensuring that all the covenants are complied with is a daunting task. And even after taking care of it, violations may happen, which may be costly for the company. So, it is necessary to perform Covenant testing to ensure no violation happens.

 

Ensuring compliance with all debt covenants is difficult, as a company might have multiple debts with varying terms and requirements. So, it is important to perform Covenant testing on a monthly basis or at least a quarterly basis. Covenants testing ensures that the company is not already violating any covenant, and if any violation is expected in the future, then adequate steps can be taken beforehand.

The company’s updated financial model is the most important tool for performing covenant testing. A financial model includes historical and forecasted Income statements (IS), Balance sheets (BS), and Cashflow statements (CFS). Based on IS, BS, and CFS, various financial metrics, ratios, etc., can be computed, and they can be compared with requirements under debt covenants. This way, it can be concluded whether the company is or expected to violate debt covenants or not.

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    Quality is our first priority. We always provide our clients with world-class services with a 99.99% quality guarantee and keep improving the process. Our quality checking process pass-through a 3-step checking process, reducing the error chance to zero percent.

    Our process improvement continuously checks for model and report upgradation, change or application of new industry or legal rules in the valuation and analysis process. Our existing clients are very much satisfied with our quality services.

    We work on a low-price model without compromising the quality of the work. We have a talented pool of MBA, CVA, CPA, CFA and other finance, accounting, and economics graduates to maintain the quality.

    Since we operate from India, we benefit from the labour arbitrage and pass the same befit to our clients by providing quality services at 60-70% less than their in-house operating cost.

    We always try to deliver projects as soon as possible after all required work and quality checks are done.

    As soon as we receive a project request from the client, we add that to our project pipeline and set the final deadline. Then we review and request the missing documents/data from the client. In the meantime, our operation manager assigns respective tasks to respective analysts based on their competencies and sets a deadline for each. After the completion, the QC team takes over the project and checks for errors in 2-3 steps. After confirmation, our managing director quickly looks at the project and then delivers it to the client before the final deadline.

    We are a reliable and trusted offshoring partner for the client. We sign the NDA and NCA when a contract is finalised between the client and us. We work for the client's best interest in a very transparent way, for which clients rely and depend on us for their part/whole process for the long term without any confusion.

    We provide our endless dedicated support to our clients 24/7, whether related to a project, pricing, time or audit support. This is why clients have loved to partner with us for a long time. We provide support via online video meetings like zoom or Microsoft teams or skype, voice calls, Whatsapp and our online chat agent on our website.

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