Hedge Fund Glossary

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Fixed Charge Coverage Ratio

the ratio of EBITDA (or Adjusted EBITDA) to Fixed Charges. Most High Yield Indentures permit Issuers to incur debt in instances where, Pro Forma for the incurrence of such debt and the use of the proceeds therefrom, the Issuer’s Fixed Charge Coverage Ratio would be above a certain threshold — generally 2.00 to 1.00. The basic idea here is that the Issuer can incur more debt if, after taking into account the newly incurred debt, the Issuer would have at least two dollars of cash flow (or EBITDA) on a trailing twelve-month basis for each one dollar of Interest expense.

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