What to check before your next debt renewal

Hey Everyone,

A debt facility agreement is one of the few documents that can block a hire, slow an acquisition, or limit how much cash you keep on hand. The terms inside it are negotiable, and renewal is when you have the most room to improve them.

Today, we're sharing four numbers to find in your agreement and two provisions that are worth renegotiating.

Pull your agreement and find these four numbers

Ask your CFO or general counsel for the Credit Agreement or Facility Agreement, then open it to the financial covenants section and look for the following.

Maximum leverage ratio: Expressed as a multiple of Net Debt to EBITDA, this is the ceiling you can't breach without triggering a default.

Your agreement will state a specific number, typically between 4.0x and 6.0x. The number itself is less useful than knowing your current distance from it.

Minimum interest coverage ratio: This is EBITDA divided by interest expense, and your agreement will specify a floor – typically 2.0x or above.

If the business has taken on more debt or seen margin pressure recently, this number moves faster than you'd expect.

How your EBITDA is defined: Look for 'Consolidated EBITDA' or 'Adjusted EBITDA.' Some agreements let you add back restructuring costs, one-time charges, or savings expected from a recent acquisition. Others are narrow. The definition determines how much headroom you actually have, and it's negotiable at renewal in ways that aren't always obvious from reading the original agreement.

Your cash-netting provision: Some leverage covenants let you subtract cash on hand from gross debt when calculating your ratio. If you're holding $5M in cash and owe $40M, a net leverage covenant values your position at $35M in debt rather than $40M.

Sidley Austin's March 2026 analysis of private credit terms describes cash-netting as one of the most actively negotiated provisions in credit agreements and one that directly reduces the debt figure used in your leverage calculation.

Two terms worth pushing on at your next renewal

Once you know what you have, you know what to ask for.

The EBITDA definition: Research on debt contracts found that EBITDA definitions are frequently loosely worded in early agreements. Borrowers who revisit them at renewal gain meaningful headroom without changing the ratio itself.

Prepare a list of costs from the past 24 months that you believe should be excluded from EBITDA – integration expenses, one-time restructuring charges, costs from a recent acquisition, and above-plan hiring costs are all reasonable candidates. Ask for specific contract language that captures them.

Cash-netting: If your agreement doesn't already include it, this is the first thing to request at renewal. Lenders grant it readily when the business is performing well, because it costs them little at that point. Ask specifically for netting of unrestricted cash held in accounts at the lending institution.

In both cases, the right time to push is before you need the flexibility. Lincoln International tracked roughly 730 covenant amendments across their portfolio in the 12-month period ending Q1 2024. Almost all of them were resolved cleanly because the borrower had initiated the conversation before headroom was already tight.

A lender facing a company with strong performance and comfortable ratios will negotiate. Facing a company that has missed two quarters, they'll negotiate too, but the terms will be worse and the concessions harder to get.

Try this this week

Pull your facility agreement and find the four numbers above. Write them next to your most recent actuals so you can see the distance between where you are and where your limits sit.

If you want a faster read, download our analysis prompt here.

Paste it into whatever AI tool your team uses, attach the agreement, and send. It will find the four numbers, calculate your headroom, and recommend which terms are worth pushing on at renewal.

Go deeper

👉 Sidley Austin: Financial Covenants in Private Credit Transactions – a breakdown of leverage and coverage covenants in practice, including cash-netting mechanics and cure rights

👉 Andreessen Horowitz: 16 Things to Know About Raising Debt for Startups – covers covenant types, timing, and how debt terms shift at different company stages

👉 A Faster Exit: Covenant Headroom Guide – a framework for tracking headroom and knowing when to start lender conversations

👉 SaaS Capital: iModules Software Case Study – how an ARR-linked credit line with well-structured terms funded an acquisition and generated $28.8M in net equity value

Coming up tomorrow

Tomorrow, we'll walk you through a hybrid operating plan that borrows from V2MOM, EOS, and OKRs and fits on a single page.

Have a good one!

P.S. Have you ever read your own facility agreement? We're curious whether this is something most leaders leave entirely to their CFO or whether you've actually been in the document.