Fitch Ratings has published the latest issue of its Capital Structure and Covenant Analysis for the 50 Largest U.S. Leveraged Issuers and thr average enterprise value/EBITDA market multiple for the Fitch 50 increased from 11x to 14.7x, far exceeding the average market valuation multiple across all sectors, which decreased from 10.2x to 9.9x.
Compared with the last edition’s tallies, the credit metrics of the companies in this edition stabilize in terms of LTM leverage ratios. The number of companies with a leverage ratio below 5.0x remains 19, and the count of those with a leverage ratio above 8.0x increased from 13 to 15. Other than Sears Holdings Corporation, all other companies maintain an interest coverage ratio above 1.0x.
Shrinking Covenant Headroom: Covenant headroom deteriorated for most issuers that have maintenance financial covenants. Thirteen companies (vs. six in the last edition) are in a position where an EBITDA decline of 20% or less would trip their tightest covenant, and three have headroom of below 10%.
Built on improvements realized in the last edition, this report furthers standardization of limitations on incurrence of debt and limitations on restrictive payments. The report also simplifies and highlights the change of control clauses. New companies are included – Avago Technologies Finance Pte. Ltd., DaVita Healthcare partners Inc., Dell Inc., Dollar Tree, Hilton Worldwide Holdings, Inc., Mallinckrodt Plc, Scientific Games Corp. and T-Mobile USA.
Published annually, the ‘Fitch 50’ is a comprehensive report compiling organizational structure diagrams and credit agreement/indenture summaries. The structural analyses focus on detailed organizational charts that delineate structural relationships among various affiliate entities and debt issuances. Simplified, though still in-depth, the issuance summaries recapitulate essential terms in bank agreements and bond structures, such as seniority, security, guarantee, negative covenants, financial covenants, etc.
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