To communicate covenant risk to the board, lead with date, headroom, scenarios, and a clear action plan. The board won't read a 20-page analysis. They want four things: when, how much, what if, and what do we do. Most CFOs make the mistake of showing too many numbers and too little direction.
The structure that works: DATE-HEADROOM-SCENARIOS-PLAN
1. The date (one slide)
The single most important piece of information.
"Based on current trends, we hit the covenant threshold (gearing 3.5×) in week 38 — in 14 weeks."
One place. One number. One date. Everything else builds on this.
2. Headroom (one slide)
Context for the date. How much headroom do we have right now?
- Current gearing: 3.2×
- Covenant threshold: 3.5×
- Headroom: 0.3× (9%)
- EBITDA must fall 8–10% to trigger breach
3. Scenarios (one slide)
Not too many. Three is enough:
- Base case: Current trend → breach week 38
- Upside case: Order book delivers on plan → breach avoided
- Downside case: EBITDA falls another 10% → breach week 22
Show the three as a simple timeline with traffic lights. Visual, not tabular.
4. The plan (one slide)
What do we do? Concrete actions:
- Action 1: [Concrete action] — responsible: [person] — deadline: [date] — impact: [kr./× on gearing]
- Action 2: ...
What the board will ask: When did we discover this? Is the plan realistic? Have we talked to the bank? What if the plan doesn't hold? Prepare the answers.
The visual rule
A covenant analysis should have at minimum these three visual elements:
- Timeline: Today → breach date → actions along the way
- Traffic light map: Green/yellow/red based on headroom and trend
- Sensitivity table: How does the breach date change if EBITDA falls 5%, 10%, 15%?
Language that works
Avoid financial jargon. Use clear sentences:
- Not: "Leverage ratio approaches threshold in Q3 under base case assumptions"
- But: "We hit the covenant threshold in week 38 if the trend continues"
The board should be able to repeat the message afterward — in their own words.
What the board must decide
Most important: Don't end with "we will keep you informed". End with a concrete decision:
- Does the board approve the action plan?
- Should the CEO contact the bank before [date]?
- Who pulls which decisions if we deviate from the plan?
A good board meeting ends with a date, headroom, scenarios, and a decision.