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GLOSSARYTERMS AS A CREDIT DESK USES THEM

Net debt (covenant definition)

What counts as net debt in a leverage covenant?

ONE OF 366 TERMS · FREE · NO SIGNUP

BY MICHAEL SHANG · SIXTEEN YEARS IN COMMERCIAL BANKING · UPDATED

// THE SHORT ANSWER

Net debt, in a facility agreement, is the borrowings the leverage covenant counts less the cash the agreement allows to be deducted, and its definition is often among the most negotiated lines in the document. It usually includes loans, bonds and finance leases, and may or may not include guarantees of others' debt, deferred acquisition payments, hedging close-out amounts or shareholder loans. Deductible cash is usually limited to unrestricted cash, and sometimes capped. With borrowings of US$560m, cash of US$40m and EBITDA of US$200m, total leverage is 2.8 times and net leverage 2.6 times.

BASIS  Practitioner judgment from sixteen years in commercial banking, set out in How Bankers Think (Highbank Press, 2026). Every borrower on this site is a composite constructed for teaching, not a client. The market is mid-market commercial lending as practised in New Zealand and Australia; where a convention differs elsewhere, the page says so.

// WHAT IT IS NOT

Debt-like items are a lender's own reading of the claims that compete with debt service; the covenant's net debt is only what the document says, and the two can differ.

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