Introduction
Covenants are key conditions in loan agreements that borrowers must meet to maintain financing terms. Lenders and asset managers rely on covenant monitoring to assess financial health and ensure compliance, but manual tracking using spreadsheets is slow, error-prone, and inefficient. Managing financial reports across multiple borrowers and reporting periods becomes increasingly complex, making it difficult to detect breaches, compare financial versions, and analyze trends effectively.
What’s in it for you?
At Cardo AI, we’ve built a tool within our asset-based finance software that automates financial data ingestion, tracks trends over time, and updates covenants in real time, eliminating the need for spreadsheets. Our platform:
- Simplifies financial data uploads: Import financial reports with a single click or API integration.
- Tracks covenants in real time: Automatically updates compliance status when new financials are uploaded.
- Enables historical comparison: Stores and compares multiple versions (e.g., reported vs. adjusted) for deeper insights.
- Offers custom metrics: Rename financial fields to better align with the specific industry and create tailored financial metrics.
Why does it matter?
Without automation, lenders and asset managers waste time, introduce errors, and struggle with compliance. Our solution:
- Keeps financial records organized and accessible, enabling better performance.
- Saves time and reduces errors by automating covenant monitoring.
- Ensures transparency and compliance with a full audit trail, useful for regulatory reviews and internal reporting.
How does it work?
- Upload financial data: Import monthly, quarterly, semi-annual, annual, LTM or YTD financial reports.
- Get instant insights: The platform automatically calculates key financial metrics like EBITDA, revenue growth, leverage and ICR, displaying them in interactive graphs.
- Manually update the covenant: The platform allows for manual updates to covenants, maintaining logs of non-numerical covenants, including affirmative and negative covenants, as well as borrower declarations and representations.
- Monitor covenants in real time: The system checks compliance instantly, flagging breaches as soon as new data is uploaded (e.g., if a Net Leverage covenant requires monthly monitoring, it updates automatically with each new report).
- Manage adjustments & waivers: If needed, users can also manually update covenant levels, record waiver requests.
- Maintain a full audit trail: Every financial update and covenant decision is logged, ensuring a clear, traceable compliance record.
Use Case
A private credit lender extends a €50 million loan to a mid-sized manufacturing company. The loan agreement includes quarterly financial reporting requirements and a Net Leverage covenant, which must stay below 4.5x EBITDA.
The challenge: The lender relies on spreadsheets to manually track financial statements and covenant compliance. The borrower submits financial reports 10 days late, delaying the lender’s ability to review key financial metrics. By the time the lender manually processes the numbers, an EBITDA drop has already pushed Net Leverage to 4.7x, exceeding the agreed covenant. However, this breach goes unnoticed for over a month, allowing the borrower to continue drawing funds. By the next quarter, leverage has increased further to 5.2x, leaving the lender with limited options to mitigate risk. The delayed identification of these issues also creates problems for investor reporting and regulatory compliance.
The solution: With Cardo AI’s automated covenant monitoring, the borrower uploads financials directly into the system, which instantly processes the data, calculates key metrics, and updates covenant levels in real time. The moment Net Leverage exceeds 4.5x, an alert notifies the lender, prompting immediate action to request a waiver, adjust loan terms, or demand additional collateral. The platform also analyzes historical trends, identifying early warning signs of EBITDA decline and allowing the lender to intervene before the situation worsens. The automated audit trail ensures full transparency, making regulatory reviews and investor reporting seamless.
See how real-time covenant monitoring could transform your compliance workflow.
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