You are a credit officer at Midwest bank, monitoring the default risk of a commercial...
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Accounting
You are a credit officer at Midwest bank, monitoring the default risk of a commercial loan: You have obtained the following information on the loan:
- The loan has a maintenance covenant in the form of an interest coverage requirement of 1.5x
- The firm's EBITDA ranges from $10 million to $60 million.
- Interest is expected to be $20 million.
If the outcomes for EBITDA are equally likely, what is the probability that EBITDA/interest will fall below 1.5x, breaching the covenant?
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