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LII
1985 1986 1987 1988
EBIT/Interest 8.93 7.89 1.9 1.65
EBITDA minus
CAPEX/Interest .94 (.77) (7.81) (1.16)
LTI
1985 1986 1987 1988
EBIT/Interest 7.14 3.38 1.82 1.50
EBITDA minus
CAPEX/Interest (4.04) (3.92) (6.15) (1.19)
The ratios of EBIT to interest for Transit and Tree for the
years in issue were as follows:
1985 1986 1987 1988
Transit 2.66 1.98 1.59 1.06
Tree - 8.30 1.85 1.00
I. Bank Loans
1. Debt to Equity Ratios Required by Banks
Petitioners' ability to borrow from commercial lenders was
limited by leverage ratios and other covenants included in the
loan agreements.18 The maximum that petitioners could borrow
under all of their commercial loan agreements without special
approval by the bank was the amount of debt that would not
increase their debt to equity ratio to more than 2 to 1. LTL,
LTI, LII, and LWSI had commercial loan agreements which required
them as the borrower or the guarantor to have debt to equity
ratios of 2.5 to 1 or less in the taxable years in issue. The
GSX acquisition caused LII to be highly leveraged, which
18 The banks could waive the debt to equity ratio limit.
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