While a host of automation products have dramatically improved the treasury toolkit in recent years, important gaps remain. At a time when a debt covenant violation could plunge a company into a possibly fatal liquidity crisis, the tools for monitoring covenant compliance and getting alerts in time to avoid catastrophes are still primitive. Help is on the way, but don't expect a slick, automated solution anytime soon. For now, most treasurers get by with the venerable spreadsheet. "We do all of our covenant compliance work, including sensitivity and scenario analysis, in Excel," reports Rick Moss, treasurer of highly leveraged HanesBrands Inc., Winston-Salem, N.C. "We take financial planning information from the budgeting/forecasting group and dump it into the spreadsheet file. After that, we do our own 'worst-case scenario' work to see how much cushion we have before we are likely to breach key covenants."

It works after a fashion. A treasurer or CFO should be able to look at an executive dashboard and see at a glance if covenant problems are looming, but that's rarely the case, reports consultant Craig Jeffery, managing director of Strategic Treasurer LLC, Atlanta. "Most companies still have a ways to go" to manage covenant compliance proactively, he says.

The problem is that no one system has all the relevant data, Jeffery says. "You have to extract the performance indicators from various systems. Some markers, like cash-flow metrics, may be readily available in a treasury workstation. Others, like fixed charge coverage, may be downloaded from an ERP [enterprise resource planning] system and reported through a treasury system. Still others, like minimum tangible net worth or inventory measures, may not be so easy to funnel into a report."

Complete your profile to continue reading and get FREE access to Treasury & Risk, part of your ALM digital membership.

  • Critical Treasury & Risk information including in-depth analysis of treasury and finance best practices, case studies with corporate innovators, informative newsletters, educational webcasts and videos, and resources from industry leaders.
  • Exclusive discounts on ALM and Treasury & Risk events.
  • Access to other award-winning ALM websites including PropertyCasualty360.com and Law.com.

© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.