As we continue our special series on covenants, we’ve noted how lenders and sponsors are pushing envelopes to deal with an increasingly competitive landscape. This includes areas of the credit agreement that might otherwise appear innocuous.

Take financial statements. Quarterly numbers are typically due within 45 days after fiscal quarter-end, and annuals within 120 days after fiscal year-end. Borrowers are often asking to stretch out these deadlines for at least the first few periods after an LBO: 60 days for quarterlies and 150 days for annual audits. Yet even with these extensions, it’s surprising how often deliveries are missed.

Indeed, experienced lenders note that late delivery of required financials is often a sign of credit problems. For that reason, lenders may require smaller middle market borrowers to deliver monthly numbers. Sponsors of larger midcap LBOs resist this, usually successfully.

Of equal importance to lenders is the company’s annual budget. But here again, sponsors may seek to delay delivery until the annual numbers are sent. 150 days into the fiscal year is almost half the year gone! Tough for a lender to judge performance vs. budget at that late date.