Bond investors balk at use of ‘ebitdac’ to skirt debt restrictions …growing trend of companies reporting “earnings before coronavirus” [FT]

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Bond investors have hit out at the growing trend of companies reporting “earnings before coronavirus”, warning that this new pandemic-era financial metric could allow businesses to use imaginary numbers to raise more debt than they can handle.
Fund managers have long complained about the heavy adjustments riskier companies make to their earnings when borrowing from the high-yield bond market, often as part of an attempt by their private-equity owners to massage leverage levels — or the ratio of debt to operating profits — to make buyouts look safer.
But several companies recently pushed this one stage further by reporting their “ebitdac” — earnings before interest, tax, depreciation, amortisation and coronavirus — for the first quarter of 2020. The number is supposed to reflect profits the companies believe they would have made, were it not for virus-related lockdowns and disruptions to supply chains.
The European Leveraged Finance Association, a group representing investors in higher-risk corporate bonds and loans, has warned that it would be “inappropriate” for companies to use the metric to calculate how much debt they are allowed to raise under their arrangements with lenders.


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