The second cheque: seeing the cash call before the lender does

Before I founded Fortivis I worked in a bank. Earlier, in corporate lending, I met borrowers who came in while their covenants were still met. Later I was responsible for a portfolio of distressed corporate loans of about €4 billion at Piraeus Bank, where the borrowers came after. I will not describe any of them. What I can describe is the bank's side of the table, because a fund that owns a leveraged company will sit across from it sooner or later.

The second cheque is the money an owner puts in after the acquisition, to keep the lender on side. The owner already holds the company. The money reduces debt and earns roughly what the debt cost. That return is in nobody's investment case.

What the lender sees, and when

A lender to a mid-sized company sees the audited accounts, some months after the year end. It sees a compliance certificate if the loan agreement asks for one. And it sees the account: the overdraft, the cheques presented, the payments returned.

Loan agreements differ on how often covenants are tested. Some test every quarter on management figures. Others test once a year on the audited accounts. Where the test is annual, the lender's formal reading of the company is one number a year, and it describes a December that ended four or five months earlier.

By the time that reading shows a breach, the account has usually told the bank already. The borrower is the last to raise it.

Which EBITDA the bank counts

This is the invented company we use throughout this series, as it stands at 31 March 2026. The fund bought it three years ago. It has revenue of €40 million and net debt of €14.0 million. Its loan carries a leverage covenant that began at 3.5 times and has stepped down to 2.75 times. The covenant is tested each 31 December on the audited accounts.

The fund presents EBITDA of €6.0 million. On that figure leverage is 2.3 times and there is plenty of room.

The bank does not count €6.0 million. The audited accounts for 2025 show €5.4 million, and so do the twelve months to March. The other €0.6 million is adjustments the company adds back, and the loan agreement does not recognise them. On €5.4 million leverage is 2.59 times. The room is €0.3 million of EBITDA, or about €0.85 million of extra debt.

So the company is much closer to its limit than its own pack suggests. Most of what follows comes from that gap between the fund's EBITDA and the bank's.

Two small movements

Suppose two things happen before the next test. EBITDA for the year comes in at €5.2 million, about 4 percent lower. Alone, that is 2.69 times and the covenant holds. Separately, customers who paid in 60 days begin to pay in 65. Receivables include VAT. Where sales carry the standard rate of 24 percent, five days of billing is about €0.7 million of cash that has not arrived. The overdraft covers it. Alone, that is 2.72 times and the covenant holds.

Together they give 2.83 times, and the covenant is breached. It took five days and four percent.

Look at what repairs it. Bringing leverage back to 2.75 times takes about €0.4 million of debt reduction. Collecting the late €0.7 million brings it back to 2.69 times with no new money at all. The cheapest cure is to collect the receivables, and that cure is only open to someone who noticed the five days while they were still five days.

There is a harder reading. The company owes about €1.0 million that sits outside the loan agreement's definition of net debt: cheques discounted with recourse, instalments to the State, and staff indemnity it has not provided for. The covenant does not count them. A credit officer does. On €15.0 million and €5.4 million, leverage is 2.78 times today.

The calendar matters too, and it is a separate effect. The end of March is a quiet month for this company's working capital, which stands about €1.0 million below its average for the year. The end of December is quiet as well, so the annual test sees the company at its best. In an average month the overdraft is higher by about €1.0 million, and the same ratio would read 2.78 times.

The two effects happen to be the same size. Taken together, on €16.0 million and €5.4 million, leverage is 2.96 times. Part of the room the fund thought it had depended on what was counted, and part on the month in which it was measured.

Why the bank reacts as it does

A breach is also an event in the bank's own books, and this explains most of the bank's behaviour.

European banking rules list a breach of the covenants of a credit contract among the signs that a borrower may be unlikely to pay. When one occurs, the bank has to assess the loan and record its reasoning. It may have to treat the exposure as defaulted.

If the bank waives the breach for a borrower in financial difficulty, supervisors regard the waiver as forbearance: a concession the bank would not otherwise have granted. A forborne loan is flagged in the bank's reporting. It is watched for a set period before the flag can be removed, and it carries a higher provision in the meantime.

So the officer across the table is doing two things: judging the company, and deciding what this loan will cost the bank. That answer has to be justified to a credit committee and, in time, to a supervisor. That is why the first questions are about security and guarantees. They determine how much the bank expects to lose if the loan fails.

The company in this article, with interest cover of nearly eight times, is not obviously a borrower in difficulty. Which side of that line it falls on is the bank's judgement to make, and the borrower does not see it being made.

What a breach costs the owner

Some loan agreements give the owner a right to cure a breach with new equity, on set terms. Many bilateral facilities give no such right. Then a breach starts a negotiation that the bank controls.

The cost has several parts. There is a waiver fee, and often a higher margin. The covenants are reset tighter, and the bank asks for more reporting. Sometimes it asks for a reduction of the facility, and that is the point at which the owner is asked for money. The amount comes out of the negotiation, so it cannot be worked out in advance.

The larger cost is position. A borrower who comes to the bank while still in compliance, with a forecast and a request for an amendment, is proposing something. A borrower whose certificate arrives showing a breach is explaining something. I have sat through both conversations, and they are different in tone and usually in outcome.

Where interest rates enter

A leverage covenant does not feel interest rates directly. The cash does, and so does an interest cover covenant where the agreement has one.

Bank of Greece figures for new floating-rate loans to non-financial companies show an average rate of 2.83 percent in December 2021, 5.78 percent in December 2023 and 4.68 percent in December 2024. A company that borrowed in 2021 saw its interest cost roughly double within two years. On a loan of €14 million, three points is about €0.4 million a year that its investment case did not contain.

The company in this article was bought in early 2023, after most of that rise. It had no cheap-money investment case to lose. Its interest cover is comfortable, at nearly eight times against a minimum of four. Its exposure is the leverage test, which is why the two movements above matter more to it than the rate does. A fund should know which of the two covenants is the tight one for each company it owns.

What sits outside net debt

Post-dated cheques are a normal way to settle trade in Greece. A company receives a customer's cheque dated three months ahead and discounts it at its bank. Under the cheque law, Law 5960/1933, whoever endorses a cheque is liable for its payment unless the endorsement says otherwise. The company has the cash, and it still carries the risk. Receivable days look short. If the customer fails, the bank comes back to the company.

Factoring is similar. The Greek factoring association's figures for 2025 show about 61 percent of factored turnover was with recourse.

Tax and social security arrears settled in instalments are a third item. The State allows overdue amounts to be paid over a long schedule. That is borrowing from the State, repaid monthly for years.

Staff indemnity is the fourth. Greek law gives employees an indemnity on dismissal. A company may hold a provision well below what the full obligation would come to. The shortfall does not move month to month, but a lender or a buyer who adds it up will count it.

A layout: the runway page

The fund does not need the bank's test. It needs its own, monthly, on one page. This is a layout. The figures are the example's.

Below it sits a thirteen-week cash forecast, with last month's forecast set against what happened.

The page uses the bank's EBITDA, not the fund's. It shows the room in euros. And it shows receivable days moving from 58 to 60 as a line that has changed, months before any test.

Four questions for a portfolio company

1. Which EBITDA does the loan agreement test, and how far is it from the EBITDA in the board pack?
2. How many euros of that EBITDA, and how many euros of extra debt, separate the company from its tightest covenant today?
3. Have receivable days or supplier days moved against three months ago?
4. What does the company owe that is not in net debt, and what is leverage with it included?

A finance director who can answer these within the hour already has the page. The fund should ask to receive it.

Sources

• Bank of Greece. Interest rates on bank deposits and loans, monthly press releases for December 2021, December 2023 and December 2024. New floating-rate loans to non-financial corporations with a defined maturity: 2.83, 5.78 and 4.68 percent.
• European Banking Authority. Guidelines on the application of the definition of default, EBA/GL/2016/07, paragraph 59: a breach of the covenants of a credit contract as a possible indication of unlikeliness to pay.
• European Central Bank (March 2017). Guidance to banks on non-performing loans, chapter on forbearance.
• Law 5960/1933 on cheques, articles 18, 28 and 40.
• Hellenic Factors Association, 2025 figures, as reported on 25 May 2026: turnover of €29.4 billion, of which €17.8 billion with recourse.