Total Debt:Tangible Net Worth Ratio Clause Samples
The Total Debt:Tangible Net Worth Ratio clause sets a financial covenant that limits the amount of total debt a company can have relative to its tangible net worth. In practice, this clause requires the borrower to maintain a specified ratio, such as not exceeding a certain multiple of debt compared to the company's tangible assets minus liabilities. This ensures that the company does not become over-leveraged, thereby protecting lenders by maintaining a minimum level of equity relative to debt and reducing the risk of default.
Total Debt:Tangible Net Worth Ratio. Section 9.2 of the Loan Agreement is amended as follows:
(a) For the period ending 6/30/08 only, the Total Debt to Tangible Net Worth Ratio shall be revised to a maximum of 1.75:1.00 (actual) and 1.50:1.00 (pro forma).
(b) For the period ending 9/30/08, said ratio shall return to 1.50:1.00 (actual and pro forma).