Covenant Compliance Certificate
Confirms to a lender that each financial covenant has been met, with the workings.
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| To | [lender] |
| Testing date | [date] |
| Certificate date | October 14, 2026 |
We certify, in accordance with the facility agreement between us, the position at the testing date shown above:
| Covenant | Required | Actual |
|---|---|---|
| [add one covenant per line] |
We confirm that, so far as we are aware, no event of default has occurred and is continuing, and that no event has occurred which with the giving of notice or the passage of time would become an event of default — except as disclosed to you separately in writing.
The figures above are drawn from the accounts of the business prepared on the same basis as those on which the covenants were set. Supporting workings are available on request.
What is a Covenant Compliance Certificate?
A covenant compliance certificate is the signed statement a borrower gives its lender confirming that each financial covenant in the facility agreement has been met for the period, with the calculation shown. It matters because the agreement almost always requires it by a fixed date after each quarter or year end, and failing to deliver it is itself an event of default — separate from, and sometimes before, any breach of the covenant it reports on.
Finance teams at companies with bank debt produce these: leveraged borrowers under a facilities agreement, mid-market companies with a term loan and revolver, property SPVs with an investment loan, and private credit borrowers whose documents often carry tighter tests. It is signed by a director or the CFO, sometimes two signatories, and delivered to the agent bank alongside the management accounts or audited financials. Lenders' credit teams read it, check the arithmetic and file it; auditors and any incoming lender in a refinancing will ask for the last several as part of diligence.
The content is dictated by your facility agreement, not by convention or by any statute. Definitions of EBITDA, Net Debt, Cashflow, Finance Charges and Adjusted terms are specific to that document, including which add-backs are permitted, how they are capped, whether acquisitions are annualised and how leases are treated. Accounting framework matters too — IFRS, UK GAAP, US GAAP, Ind AS and local standards treat leases, capitalised costs and revenue differently, and the agreement usually contains a frozen GAAP or equivalent adjustment clause. Read the definitions clause each time rather than reusing last quarter's assumptions.
The certificate reports; it does not amend, cure or waive anything. Disclosing a breach in it does not create consent — that requires a waiver or amendment agreed with the lenders on their terms, usually at a price. Nor does it substitute for the accounts, notices or other information undertakings the agreement requires separately. And because it is signed on behalf of the company, an inaccurate certificate can amount to a misrepresentation with its own consequences, so it should not be signed until the underlying figures are settled.
What to put in a Covenant Compliance Certificate
These are the details this template asks for. Anything left blank is marked in red on the preview so you can see what is still missing.
| Field | What goes in it |
|---|---|
| Business name | For example: Barton Supply Co. |
| Your address | For example: Unit 7, Barton Road, Columbus, OH 43212 |
| Lender | For example: Huntington National Bank, Commercial Banking |
| Testing date | Free text |
| Covenants | One per line: Covenant | Required | Actual |
| Signatory name optional | For example: K. Srinivasa Rao |
| Signatory designation optional | For example: Honorary Secretary |
How to write a Covenant Compliance Certificate
Pull the covenant clause and definitions
Start from the executed facility agreement and any amendment letters, not a summary. Extract the tested ratios, the levels for this specific test date — most agreements step down over time — the reference period, and every defined term used in the calculation. If an amendment reset a level or changed an add-back cap, that amendment governs. Working from last quarter's spreadsheet is how stale levels get certified.
Build each ratio line by line
Show the workings on the certificate itself: the reported figures, each adjustment, the subtotal and the resulting ratio against the required level. A lender's credit analyst has to be able to trace every number back to the management accounts without a phone call. Label add-backs individually — exceptional restructuring costs, share-based payment, acquisition costs — rather than presenting one aggregated Adjustments line.
Check add-backs against their caps and conditions
Permitted add-backs are usually capped as a percentage of EBITDA, limited to items incurred within a window, and sometimes require lender or reporting accountant confirmation. Apply the cap and show it. An uncapped exceptional add-back that quietly takes leverage under the level is the single most common source of dispute when a lender reviews the certificate months later.
State the position on each covenant plainly
For each test, write the required level, the actual figure and whether it is met — no narrative softening. If a covenant has not been met, say so directly and identify which one and by how much; concealment converts a covenant problem into a credibility problem, and lenders discover it at the next set of accounts anyway. Include any equity cure being applied and the basis for it.
Sign and deliver within the contractual deadline
Have it signed by the officers the agreement specifies — often a director, sometimes two, sometimes the CFO by name — and delivered to the agent in the manner and to the address the notices clause requires. Diarise the deadline from the period end. Late delivery is typically its own default, and the fix is a waiver request, so the calendar entry matters as much as the arithmetic.
Common mistakes
- Using last period's covenant levels when the agreement steps them down, and certifying compliance against a threshold that no longer applies.
- Applying add-backs beyond the cap or outside the permitted window, which turns a genuine result into an overstated one when the lender checks.
- Presenting ratios without workings, so the agent cannot verify anything and comes back with questions after the deadline has passed.
- Missing the delivery date because it was diarised from the accounts sign-off rather than the period end, triggering a default independent of performance.
- Signing before the underlying accounts are final, then having to correct a certificate the lender has already circulated to the syndicate.
Frequently asked questions
When is a covenant compliance certificate due?
On the date your facility agreement specifies, usually a set number of days after each quarter end and a longer period after the financial year end, and often required to accompany the management accounts or audited financials. The deadline runs from the period end, not from when your accounts happen to be ready. Check the information undertakings clause and diarise each date at the start of the year.
What happens if we breach a financial covenant?
The agreement decides. A breach is typically an event of default that can allow the lenders to accelerate, cancel commitments or impose default interest, though in practice they usually negotiate. Some agreements permit an equity cure within a window. Speak to your lender and your advisers early — the outcome after a disclosed breach is generally better than after one the lender finds itself.
Who signs a covenant compliance certificate?
Whoever the agreement names — commonly a director, two directors, or the chief financial officer, and in some deals a signature from the auditors or reporting accountants for particular items. Because it is a formal statement to the lenders, the signatory needs the underlying figures to be final. Check the form of certificate scheduled to the agreement; many facilities prescribe the exact wording.
What is included in EBITDA for covenant purposes?
Only what your agreement's definition includes. Covenant EBITDA is a bespoke defined term, not the accounting or market figure, and it usually specifies permitted add-backs, caps on them, treatment of acquisitions and disposals, and how leases and non-cash items are handled. Read the definition each period, since amendments frequently change it and the definition is what the certificate is measured against.
Do we still send a certificate if we are in breach?
Yes. The obligation to deliver is separate from the obligation to comply, and withholding the certificate adds a delivery default to the covenant breach. State the breach clearly, show the calculation, and raise it with the lender alongside delivery rather than letting them find it. Take advice on how it is presented and on any cure rights before you send it.
This page explains general practice and is not legal advice. Requirements differ between countries and, in some cases, between states — check what applies where the document will be used.