The buzz about DDC is growing. Before negotiations with Boeing can be completed, DDC receives a buyout proposal from Silverpond Partners for $60/sh in cash, a 60% premium to the expected IPO price. Silverpond and Golib Direct Lending Fund are finalizing the terms of a $150MM Unsecured Term Loan (UTL) with an interest rate of 8%. Golib is proposing a negative covenant in the UTL that requires DDC to maintain an Fixed Charge Coverage ratio of 2.0x. The Fixed Coverage ratio is defined as: (EBITDA+Rent Exp) / (Int Exp + Rent Exp). Assuming the loan closes and funds on 1/1/20. Based on the pro-forma projection for 2020 set-forth below, what is the pro-forma Fixed Charge Coverage ratio?

A.

1.8x

B.

3.6x

C.

2.0x

D.

3.3x

E.

2.5x

Lenders often insist on Fixed Charge Coverage Covenants because:

	A.	Maximizing coverage will lower the firms WACC and improve its valuation
	B.	A minimum coverage requirement will improve the firms leverage ratio
	C.	Maximizing coverage will ensure lenders earn the most interest income
	D.	In the event of a default, maximizing coverage will improve the lenders relative recovery compared to other pari passu claim holders
	E.	Of economic volatility

The proposed UTL also includes a standard Restricted Payment provision (RP). Assuming the loan closes, on the day after the closing (at which point the RP basket =$0) which of the following payments would be permitted under the RP (chose all that apply):

		A loan from DDC's restricted subsidiary to DDC.
		A loan from DDC's restricted subsidiary to Angel.
		A payoff of a maturing bond of an unrestricted subsidiary by DDC
		The repurchase by DDC of Angel's stock from his estate following his untimely death.
		The repayment of a bond of a restricted subsidiary by DDC because the bond contained a covenant that limited the transferability of the subsidiary's intellectual property.
		The repayment of a bond of a restricted subsidiary by an unrestricted subsidiary because the bond contained a covenant that limited the transferability of the restricted subsidiary's intellectual property.

DDC PF Inc Statement 2020PF Revenue 200,000 COGS 80,000 Gross Margin 120,000 SG&A 45,000 R&D 35,000 Rent Exp 10,000 Interest Exp 12,000 Depreciation 8,000 |Pre-Tax Income 45,000 Taxes 9,450 Net Income 4,200 DDC PF Inc Statement 2020PF Revenue 200,000 COGS 80,000 Gross Margin 120,000 SG&A 45,000 R&D 35,000 Rent Exp 10,000 Interest Exp 12,000 Depreciation 8,000 |Pre-Tax Income 45,000 Taxes 9,450 Net Income 4,200