Study by Roland Berger and HHL: Financial Covenants in Corporate Financing 2014






The global financial crisis and the Euro debt crisis have permanently changed the situation on the financial markets. This is reflected in the regulations as well as in extensive economic policy measures which have led to the current low-interest phase and have consequences for providers and recipients of financing. Not only have the access to financing and the conditions for debtors improved, but the risk assessment of debtors before and during the credit period is becoming increasingly important as well.

The current “Financial Covenants in Corporate Financing 2014” study by Roland Berger Strategy Consultants and HHL Leipzig Graduate School of Management focuses on an important instrument of defense for creditors – covenants in loan agreements between creditors and debtors. They are becoming increasingly popular in the German-speaking economic area. The study is based on a survey of about 100 companies from Germany, Austria and Switzerland.

Prof. Dr. Henning Zülch, Holder of the Chair of Accounting and Auditing at HHL Leipzig Graduate School of Management, comments, “As expected, companies are much more optimistic today, after the Euro debt crisis, than at the time when Roland Berger conducted the last survey in 2009. The opportunities for companies to fund themselves using borrowed capital and the conditions connected to borrowing have improved. The majority of companies, however, doubt the stamina of this beneficial financing environment. The companies expect stricter lending criteria – for new loans in particular – and a growing significance of internal financing in the medium term with regard to the future economic development and its consequences for financial planning.”

According to the recent study, financial covenants continue to be quite widespread in the German-speaking area in 2014 as well. Compared to the 2009 period under review, the key figures and reporting figures have hardly changed at all. The creditors are expected to tighten their policies on information requirements and the consequences of covenant violations, which are currently being handled rather loosely.

In general, financial covenants have been established as a permanent central instrument of defense for creditors in the German-speaking area. The type and combination of key figures as well as the reporting schedule are essentially detached from the cyclical and financial background. Prof. Zülch forecasts, “If the financing conditions deteriorate again, as expected, particularly for non-listed, medium-sized enterprises, the strategic degrees of freedom for new covenant agreements will decrease and their enforcement with regard to the adjustment of the loan conditions will tighten again.”

“Companies building on covenants in the future should ensure that their business models and the effects on the key financial figures are comprehensively accounted for when preparing financial plans,” advises Dr. Matthias Holzamer, financial expert at Roland Berger Strategy Consultants. In the event of a covenant violation, external mediators play an important role as they may help to reinstate trust between the companies and the financing banks.

Dr. Matthias Holzamer therefore concludes, “Financial covenants become increasingly important for corporate finances, particularly when the financial economy is about to undergo changes. Companies, which are able to anticipate that change and adjust their financial policies accordingly, will have better chances in the future.”

The study is available for download at

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