Project Larchmont — Covenant Compliance & Equity Cure
A 1.5-hour Covenant Analysis / Dual-Track Restructuring case study with a complete model answer
Modeled After
Moelis & Company
Special committee restructuring materials with no DCF, comps or precedents at all: monthly liquidity builds across four scenarios, covenant compliance and equity-cure analysis covering interest coverage and first-lien leverage with the theoretical cure quantified, a lender holder register, and dual-track M&A and restructuring timelines on a shared milestone rail
Structure and exhibit set are modeled after Moelis & Company. The company, the financials and every figure in this case are entirely our own.
The Situation
Larchmont Leisure Group
- Sector
- Regional gaming and leisure — six casinos and three waterpark and entertainment resorts in five states, with about 7,400 slot machines, 210 table games and 2,150 hotel rooms
- Size
- Geography
- United States; headquartered in Larchmont, Missouri, with licensed properties in five states
- Ownership
- Situation
The Prompt
You are the financial advisor to Larchmont Leisure Group, LLC and to Brockhurst Capital Partners as its sole member. The Company is subject to two quarterly financial maintenance covenants, both of which tighten over the forecast, and an ad hoc group of first lien lenders has delivered a proposed amendment and extension.
Supporting Materials
What you are handed at the start of the case, in the format a real process would use.
Blank modeling template
XLSXUnlock
What You Have to Produce
The deliverables, in the order the committee will read them. The exercise runs 90 minutes.
PART 1
Consolidated EBITDA under the credit agreement
PART 2
Quarterly cash roll across four operating cases
PART 3
Monthly liquidity, July 2027 through June 2028
PART 4
Covenant compliance with no action taken
PART 5
The equity cure, quantified under both conventions
PART 6
The ad hoc group's proposal, priced and tested
PART 7
Your counterproposal, and the comparison that decides it
PART 8
The lender register and the consent arithmetic
PART 9
The dual track, and the board deck
How to Approach It
The order a strong candidate works in, and why. This is the shape of the answer — the finished answer deck and Excel model are in the solution set below.
- 01
Read the credit agreement before you build anything
- 02
Get the earnings definition right before you compute a single ratio
- 03
Build the roll, then the tests, in that order
- 04
Compute the shortfall before the contribution that cures it
- 05
Price every term before you trade it
- 06
Compare the paths per quarter of runway, not on cost
- 07
Screen the register before you assume the amendment is reachable
Key Concepts
The ideas this case is built on. Know these cold and the case becomes a question of execution rather than knowledge.
Financial maintenance covenant versus incurrence
A maintenance covenant is tested on a schedule whether or not the borrower does anything, and failing it is a default. An incurrence covenant is tested only when the borrower takes an action, so a borrower that does nothing can never breach one. Pro rata bank facilities syndicated to lenders who expect a seat at the table keep maintenance tests; institutional term loans sold to collateralized loan obligation vehicles largely stopped carrying them. Which of the two a borrower has decides whether a deteriorating forecast is a negotiation or merely a disappointment.
Consolidated EBITDA as a defined term
The covenant is struck on the agreement's own definition, which is a list of permitted add-backs to consolidated net income, not on anything the borrower reports publicly. The difference is routinely worth a fraction of a turn of leverage and occasionally much more. The first discipline in any credit analysis is to compute the defined term from the reported statements rather than to accept a figure labeled Adjusted EBITDA, and the second is to be able to say what the gap between them is worth in turns.
The cost-savings add-back, its qualification test and its cap
Clause (a)(x) adds the pro forma effect of cost savings and synergies. It carries two independent constraints. The qualification test asks whether the savings are reasonably identifiable and factually supportable and expected to be realized inside a stated window, and savings that fail it are excluded before anything else happens. The cap is then a percentage of Consolidated EBITDA, and a cap struck on the figure after giving effect to the add-back permits p/(1−p) of the figure before it rather than p of it. The cap is also procyclical: expressed as a percentage of earnings, it shrinks exactly when earnings do.
The equity cure right
A sponsor's contractual option to inject cash and be treated as compliant. Six things govern how much it is worth: whether the amount is added to EBITDA or applied to prepay debt; how many test dates one contribution is carried through; whether an overcure is permitted; whether the proceeds count as unrestricted cash or reduce debt for the leverage test; how many contributions are permitted over the life and in any rolling window; and the deadline, which runs from the compliance certificate date rather than the test date. A cure right with a generous amount and a tight frequency limit is a much weaker right than it looks.
The two cure conventions, and why they cost different amounts
Under the EBITDA add-back convention the contribution raises the denominator of the leverage test. Under the mandatory prepayment convention it lowers the numerator instead. To move a ratio by the same amount, the denominator route needs the shortfall in EBITDA terms and the prepayment route needs the covenant multiple times that, so the two are related by the covenant level at a single test date. Across more than one test date the relationship breaks, because a prepayment permanently reduces the balance and the interest on it while an add-back changes nothing on the balance sheet. Which convention a document carries is one drafting change and it is frequently the most expensive term in an amendment.
Required Lenders, affected lenders and all-lender votes
A credit agreement grades its amendments. Resetting a financial covenant level, amending the cure provisions or raising the interest rate is ordinarily a Required Lenders vote, because only a reduction in rate or principal requires the consent of each lender directly and adversely affected. Releasing all or substantially all of the collateral, or amending the pro rata sharing provisions or the definition of Required Lenders itself, ordinarily needs everybody. Required Lenders is also usually struck on term loans plus revolving commitments, not on the term loan alone.
Non-pro-rata amend-and-extend and the springing maturity
Extending a maturity requires each extending lender's own consent and binds only that lender, which is what makes a partial extension possible at all. The stub of non-extended loans is then managed by a springing carve-out: if more than a stated amount is still outstanding a set number of days before the old maturity, the extended loans and the revolver spring back to that date. A partial extension is therefore only worth doing above a participation rate that the carve-out itself defines, and whether that rate is reachable is a question about the register rather than about the economics.
Reading a lender register
Vehicles managed by one adviser vote as one, so a register of positions is not a register of decision-makers and aggregating it changes the arithmetic of any consent. Two columns then decide the rest. Settlement status matters because a trade that has not settled leaves the vote with the seller. Stated maturity matters because a collateralized loan obligation cannot hold an asset maturing after its own stated maturity, so a vehicle can be perfectly willing to extend and still be unable to.
Cure deadlines run from the certificate, not the test
The clock on a cure right almost always runs from the date the compliance certificate for the quarter is required to be delivered, which is forty-five days after a quarter end and ninety after a fiscal year end, plus the stated business days. That places the real decision date months after the test date it relates to, and it is the date that has to appear on any process timeline — because it is the date on which money has to move.
Dual-track running against a fixed deadline
An amendment path and a sale path are not alternatives evaluated at leisure; they are two processes with different lead times running toward the same default date. Backing the sale path's launch date out of its closing requirement — including regulatory approvals, which in gaming run in several states in parallel and are not compressible — produces a date after which the choice has already been made. Putting both paths on one rail is how you find that date.
What Makes It Hard
The specific traps in this case — the places candidates lose the assessment without noticing.
Check Your Answer
Type the figures you produced and find out how many are right before you open the worked answer. You get a verdict and, where you are off, a pointer to the part of the build to re-check — never the number itself. Everything you type stays on this device.
How to type a figure. Digits, with an optional unit: 1,234.5, $1,234.5, 2.6x, 21.4%. For a negative use (20.0) or -20.0. Enter as many decimals as you carried — precision is never penalised.
What the Case Asked For
The arithmetic is only half of it. Tick off what you actually produced — this half is yours to score, because nothing can grade a written recommendation from a checkbox.
The Model Answer
The worked answer in full: answer deck and Excel model, built the way a banker would actually build them. It is a reference, not a submission — a strong answer under the clock is far shorter.
What the Solution Covers
- —Monthly liquidity build across scenarios
- —Covenant compliance testing
- —Theoretical equity cure quantification
- —Lender holder register analysis
- —Dual-track M&A versus restructuring timelines
- —Amend-and-extend negotiation
Answer Deck
Full model answer, banker-formatted
Upgrade to Diamond
Sign up and upgrade to Diamond to unlock the answer deck, the Excel model and the audio walkthrough.
Get StartedThe Excel Model
The model is linked and tied out end to end — every schedule, every formula and every check, in the file itself.
Downloads are available to Diamond members
Excel Model and PowerPoint Deck and Answer Deck (PDF) — yours to open, edit and rebuild
Walkthrough
A conversational walkthrough of how to approach the case under time pressure — where to start, what to cut, and how the recommendation gets defended.
Audio Walkthrough
How to approach Project Larchmont — Covenant Compliance & Equity Cure
60-second preview — upgrade to Diamond for the full walkthrough
Frequently Asked Questions
Why is there no valuation anywhere in a case about a leveraged company?
Because the materials this case is modeled on do not contain one. The board is asking whether the Company complies with two covenants on eight specific dates, what it costs to make it comply, and whether the lenders can be assembled to change the dates. Enterprise value never enters the answer, and the exhibits that would estimate it — comparable companies, precedents, a discounted cash flow, a football field — are absent from the real documents for the same reason.
Which EBITDA should the covenant ratios be struck on?
Consolidated EBITDA as the credit agreement defines it, always, and the first exhibit in the workbook exists to build it from the reported statements. Management's Adjusted EBITDA is the full add-back claim before the agreement's qualification test and its cap have been applied to it. The two are not close enough for the difference to be presentational, and being able to state what the gap is worth in turns of leverage is part of what the case grades.
Is the equity cure just a matter of computing a shortfall?
No, and treating it that way is the most common failure here. The amount is one of six things the document controls. The others are the convention — whether the money is added to EBITDA or applied to debt — the number of test dates a contribution is carried through, the prohibition on overcure, whether the proceeds are disregarded for the leverage test, and the limits on how many contributions may be made over the life and in any rolling four quarters. The last of those is usually what ends the discussion.
How should I compare an amendment against an equity cure?
On one basis, and per quarter of covenant runway rather than on cost. Discount each path's cash to the same date at the same rate, chained by hand rather than with a built-in function, then divide by the number of consecutive test dates the path actually clears. A path that costs less and buys fewer quarters is not cheaper, and a path that costs more and removes the deadline may be the cheap one.
How much of the 90 minutes should go on the workbook?
Most of it, but not all: the template's own cover prints the measured scope and allocates the whole ninety minutes step by step, with about ten at the start for the credit agreement extracts and about ten at the end for the recommendation. This is a case about what a document says, and a candidate who assumes a majority can do something that in fact requires each affected lender has the answer wrong however good the arithmetic is.
Do I need to screen the lender register, or can I take the totals as given?
You have to screen it. It is a raw export from the agent: unsorted, untotaled, with no percentage computed anywhere, and it is the only place in the case where holder-level data appears. Aggregating vehicles by manager changes the number of decision-makers, and two columns you might skip — settlement status and stated maturity — decide whether particular positions can vote and whether they can extend.
Is it acceptable to recommend that the sponsor put more money in than the lenders asked for?
It is, if the model says the money buys something worth more than it costs. Terms in an amendment are not all priced the same way, and a concession that is expensive to the lenders and cheap to the sponsor is exactly what a counterproposal should be built out of. The requirement is that every term has been priced before it is traded, and that you can say what each one is worth.
About This Covenant Analysis / Dual-Track Restructuring Case Study
Covenant Analysis / Dual-Track Restructuring case study for investment banking interviews. 90-minute format covering monthly liquidity build across scenarios, covenant compliance testing, theoretical equity cure quantification. Includes the full prompt, a model answer deck, a tied-out Excel model and an audio walkthrough.
This case study sits in Investment Banking, under Restructuring & Special Situations. Every case ships with the full prompt, the supporting materials, a complete model answer and an audio walkthrough of the judgment behind the recommendation.
90-Minute Format
The time limit a real assessment would give you
Answer Deck
Included in the model answer
Excel Model
Included in the model answer
Audio Walkthrough
How to approach the case under time pressure
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