Worked example, European Industrial Co: EBITDA $40m, Total Debt $200m, of which $160m Senior. Cash Interest $16m. Compute the standard ratios.
Starting data:
- EBITDA: $40m
- Total Debt: $200m (of which $160m Senior)
- Cash Interest: $16m
- Capex (assumption): $8m
Calculation:
```
Senior Debt / EBITDA: 160 / 40 = 4.0x
Total Debt / EBITDA: 200 / 40 = 5.0x
Interest Coverage (EBITDA basis): 40 / 16 = 2.5x
(EBITDA − Capex) / Interest: 32 / 16 = 2.0x
```
All four ratios sit in the normal market range for middle-market LBOs — solidly structured, no covenant stress.
Deep diveShow more details
| Ratio | Market range | European Industrial Co |
|---|---|---|
| Senior Debt / EBITDA | 4.0–5.5x | 4.0x (low end) |
| Total Debt / EBITDA | 5.0–6.5x | 5.0x (low end) |
| Interest Coverage | 2.0–3.5x | 2.5x (mid-range) |
| (EBITDA − Capex) / Interest | 1.5–2.5x | 2.0x (mid-range) |
European Industrial Co is conservatively structured. If the senior tranche were raised to $200m (5.0x EBITDA), the coverage ratios would move into a more critical zone and maintenance covenants would be set tighter.
Question: "Which ratio would you watch first?"
Answer: "Cash interest coverage. With floating-rate debt it erodes quickly as coupons rise. It is also very sensitive to EBITDA drops — a 10–20% EBITDA decline is often enough to breach maintenance covenants"