A Canadian Banking Lawyer's Perspective On EBITDA Add-Backs

The financial crisis put a much greater emphasis on robust regulation of the banking sector. Leveraged lending practices, in particular, were put under a microscope. Human nature is such that, when confronted with strict rules, we are invariably prompted to devise creative ways to circumvent them. EBITDA add-backs have become an elegant tool to sidestep new and more onerous leverage level restrictions imposed by regulators and indeed financial institutions. In this article, we will begin by providing a high-level overview of the regulatory landscape applicable to leveraged lending. We will subsequently describe EBITDA-add backs, their utility and potential risks associated to them in the context of a financing transaction.