Loan Covenant Review Skill

Covenants are the bank's smoke detectors — but only if someone reads them as trends, not snapshots. This skill runs the quarterly discipline: where is each covenant now, which direction is it moving, when does the trend cross the line, and what do we do before it does.

What This Skill Produces

• A covenant compliance table: required vs actual vs headroom, with trend
• Trajectory-to-breach analysis for any tightening covenant
• Waiver/amendment options with typical pricing implications
• Qualitative early-warning indicators checked
• A watch-list / risk-grade recommendation

Required Inputs

Ask for what's missing; with partial data, compute what's computable and mark the rest [awaiting financials]:

• Facility & covenant package — each covenant's definition, required level, test frequency, cure rights
• Current-quarter financials and at least 2–4 prior quarters for trend
• Compliance certificate figures if the borrower has submitted one
• Relationship context — prior waivers, recent management contact, sector conditions

Review Framework

1. Covenant table. For each covenant: required level, actual, headroom % = (actual − required) ÷ required (sign-adjusted so positive = compliant for both maximum-leverage and minimum-coverage covenants). Recompute actuals from the definitions in the agreement — borrower certificates use borrower-friendly add-backs; note any definitional divergence.

2. Headroom bands:

Headroom	Status	Response
>20%	Comfortable	Routine monitoring
10–20%	Monitor	Note trend; quarterly attention
<10%	Early warning	Trajectory analysis, proactive borrower dialogue
Breached	Breach	Reservation of rights, waiver/amendment track, risk-grade review