Corporate debt during the pandemic: NPR

The coronavirus crisis has left many businesses with huge budget deficits and some have turned to borrowing. There is a new strategy that some companies have adopted to control their debt.


The pandemic has left many businesses with many bills to pay and huge budget deficits. As a result, some of them have started borrowing money and a number of them are already struggling to meet the terms of their loan agreements. Darius Rafieyan and Cardiff Garcia from our daily business podcast The Indicator explore the creative new strategies some companies are adopting to control their debt.

DARIUS RAFIEYAN, BYLINE: If you’re an accounting enthusiast like me, you know EBITDA. If you’ve never heard of it, don’t worry too much. It’s just a very popular way to measure the profitability of a business. Now some report an EBITDAC with a C at the end. The C stands for coronavirus. EBITDAC is a way for companies to report what their profits would have looked like if the coronavirus had never happened.

CARDIFF GARCIA, BYLINE: Yes. And in fact, the term EBITDAC was originally coined as a social media joke.

SABRINA FOX: Everyone thought it was funny until it actually started to happen and companies reported profitability by adding in lost revenue as if they hadn’t had the disruption caused by the coronavirus.

GARCIA: Sabrina Fox is executive advisor to the European Leveraged Finance Association, which represents large institutional investors who lend money to large corporations.

RAFIEYAN: That’s right. Last month, German manufacturing company Schenck Process became, to our knowledge, the first company to officially report its EBITDAC. They literally used that joke term in their income report. And this method of reporting hypothetical gains may be starting to gain traction. Uber recently reported, in quotation marks, “adjusted results,” which added some of its coronavirus-related spending. And according to one estimate, up to 1 in 10 large businesses could use some sort of coronavirus-adjusted profit measure.

GARCIA: Yes. And as you might have guessed, there is an element of wishful thinking in all of this. Basically what’s happening is companies are reporting what would have happened if we lived in the world we all wish we had without coronavirus instead of the world we actually have, which unfortunately includes the coronavirus. Sabrina Fox concedes that agreeing to report these kinds of fictitious numbers can be a useful way to avoid unnecessary turmoil and keep the economy as good as possible. But she fears that if businesses are allowed to bypass those loan requirements, it could lead some businesses to borrow more money than they can possibly afford to repay.

FOX: They claim they’re the same – at the same level of profitability as they would have been if the coronavirus hadn’t happened. But we don’t know if that will ever be the case.

GARCIA: Over the past decade, investors around the world have been eager to find somewhere to put their money where they can get a decent return. So they loaned that money to companies where they can get that return. And that gives companies a lot of leverage to allow them to negotiate increasingly loose and weaker terms.

RAFIEYAN: Yes. And Sabrina fears the pandemic will further erode the few protections left for lenders. But, she says, given the magnitude of the crisis we are currently facing, we may all have to agree to bend reality a bit. Darius Rafieyan.

GARCIA: Cardiff Garcia, NPR News.


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