- 50 - Tree with Tree's assets. Tree agreed to maintain minimum leverage ratios, current ratios, and interest coverage ratios19 and to meet minimum cash-flow requirements. J. Comparison of Terms Governing Advances from LIIBV and Bank Loans 1. Similarities Between Bank Loans and LIIBV Advances The bank loans and LIIBV advances for the years in issue were in writing. All were for general corporate purposes or acquisition of other businesses. All had some representations and warranties to the bank or LIIBV about financial conditions of the recipient. All required corporate existence and authority, punctual payments, some type of periodic reporting, and notice of default. All imposed limitations on further encumbering any security. All treated nonpayment, incorrect or false representations, noncompliance with material terms and conditions, insolvency or bankruptcy, and other similar events as a default. Most had cross-default clauses and acceleration clauses. Most were guaranteed by a parent. All allowed prepayment without penalty. 2. Differences Between Bank Loans and LIIBV Advances Bank loans always had borrowing limits. The LIIBV advances were generally not limited. Banks lent less than LIIBV advanced. 19 Interest coverage ratios relate the financial charges of a firm to its ability to service them. An interest coverage ratio is earnings before interest and taxes net of non-cash expenses such as depreciation and amortization (EBITDA) divided by interest expense. This ratio is one measure of a company's ability to pay interest.Page: Previous 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 Next
Last modified: May 25, 2011