Q1 2020 | COVID-19 Edition

Valuations & Opinions Group

Inside this Issue

With leverage covenant testing and expected declines in performance on the horizon, Q2 2020 will be a true test of company performance.

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Inside this Issue

Lincoln International observes declines in enterprise values and private credit instruments in the first quarter of 2020 with no safe haven industry.

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Re-forecasted Earnings as a Result of COVID-19

Companies that provided a FY 2020 budget updated for the impact of COVID-19 anticipated an average decrease in EBITDA of 23.0% (2020E vs. LTM).
On average, Consumer is anticipated to experience a ~35.0% decline in EBITDA through FY 2020, while Technology is expected to be minimally impacted by COVID-19.

Note: Budgeted decline annualized based on the date differential between LTM EBITDA and FY 2020E EBITDA; limited COVID-19 adjusted budgets received for companies operating within Energy

Preparing for Liquidity Constraints: Increased Revolver Draw

Of the companies which drew down on their Revolver in response to COVID-19, ~40.0% drew down 100.0% of their outstanding commitment.
Consumer companies reported the highest average Revolver draw in Q1 2020 at 78.9% of total commitment, with Technology companies exhibiting the highest average increase in Revolver draw from Q4 2019 to Q1 2020.

Note: Revolver draws presented as a % of total commitment

Indicators Of Future Distress?

Covenant compliance bifurcated by industry exhibited relatively stable headroom. However, covenant breaches may become more prevalent throughout the remainder of 2020.

Leverage Compliance Tracking – 2020 Q1

Leverage Compliance Tracking – 4 Quarter Average

Covenant Headroom by Industry