MIDDLE MARKET
Database
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
