When we look at Danish SMEs that have breached their covenants, it typically traces back to one or more of five patterns. None of them are secret — they're visible in the numbers several months before the breach.
1. Sudden EBITDA drop
The most common cause. Revenue falls, prices are pressured, or a single large customer disappears. The impact on gearing is disproportionate: A drop in EBITDA of 15–20% is often enough to move gearing from 3.2× to 3.9×.
2. Rising debt
The company draws on its credit facility to finance growth, acquisitions, or working capital. Even if EBITDA remains unchanged, gearing rises when debt grows. This often happens gradually — and hits the covenant right around a quarter-end.
3. Working capital that ties up liquidity
This is the sneaky one. EBITDA can look fine, but cash is drained because inventory grows, receivables pay more slowly, or creditors push for payment. The company draws on its revolving credit — and debt increases. It hits gearing indirectly.
The pattern: Working capital problems show up in the cash conversion cycle (DIO + DSO − DPO). When CCC rises faster than revenue, it's an early signal of coming liquidity drain.
4. One-off losses and write-downs
Write-downs on inventory, losses on large receivables, lawsuits, or severance costs can all hit EBITDA directly. The bank often accepts add-backs for pure one-off costs — but not always.
5. EBITDA definition that doesn't match the company's own
This is the most surprising. The company calculates EBITDA itself based on its own rules — but the loan agreement has its own, often stricter, definition. Some add-backs aren't permitted. Certain extraordinary items must be included. The difference can be significant.
Many technical breaches don't occur because operations are worse — but because the company only discovers too late how the bank calculates the numbers.
The good news
All five patterns are visible in the numbers several months before the breach. A covenant breach is not a hurricane. It's an ebb tide. You can see it coming, if you know what to look for.