CM-001
Scenario
This case tests identification and extraction of financial covenants from the Acme Corporation facility agreement. The agreement contains three financial maintenance covenants tested quarterly: a Leverage Ratio cap, an Interest Coverage Ratio floor, and a Debt Service Coverage Ratio (DSCR) floor. All three are clearly stated with numeric thresholds and explicit testing periods. No waivers or carve-outs apply to these covenants. This is the baseline financial covenant case — all three should be found, correctly classified as "financial," and extracted verbatim.
Input
Document: acme-corp-facility-agreement.pdf
Task: Identify all financial covenants in this agreement. For each covenant, extract: covenant name, type classification, threshold value (verbatim), testing frequency, and the clause reference. Flag any waivers, carve-outs, or grace periods.
Expected Output
| Covenant | Type | Threshold | Testing Frequency | Grace Period | Waiver / Carve-out |
|---|---|---|---|---|---|
| Leverage Ratio | Financial | ≤ 4.0× (Net Debt / EBITDA) | Quarterly — last day of each financial quarter | 30 days after each quarter-end to deliver compliance certificate | None |
| Interest Coverage Ratio | Financial | ≥ 2.5× (EBITDA / Net Finance Charges) | Quarterly — last day of each financial quarter | 30 days after each quarter-end to deliver compliance certificate | None |
| Debt Service Coverage Ratio (DSCR) | Financial | ≥ 1.2× (EBITDA / Debt Service) | Semi-annual — 30 June and 31 December each year | 45 days after each semi-annual date to deliver compliance certificate | None |
Definitions required:
- Net Debt: as defined in Clause 1.1 — gross financial indebtedness minus unrestricted cash and cash equivalents
- EBITDA: trailing 12-month earnings before interest, taxes, depreciation, and amortisation, as calculated per Schedule 5
- Net Finance Charges: total interest expense less interest income for trailing 12 months
- Debt Service: scheduled principal repayments plus net finance charges for the relevant 12-month period
Ground Truth Citation
Leverage Ratio
"The Borrower shall ensure that the Leverage Ratio, calculated as at the last day of each financial quarter, shall not exceed 4.0 times. 'Leverage Ratio' means the ratio of Net Debt to EBITDA, calculated in accordance with Schedule 5 (Financial Covenant Calculations)."
Source: acme-corp-facility-agreement.pdf, Page 38, Clause 23.1(a) (Financial Covenants)
Interest Coverage Ratio
"The Borrower shall ensure that the Interest Coverage Ratio, calculated as at the last day of each financial quarter, shall not be less than 2.5 times. 'Interest Coverage Ratio' means the ratio of EBITDA to Net Finance Charges for the Relevant Period, calculated in accordance with Schedule 5."
Source: acme-corp-facility-agreement.pdf, Page 38, Clause 23.1(b) (Financial Covenants)
DSCR
"The Borrower shall ensure that the Debt Service Coverage Ratio shall not be less than 1.2 times as at 30 June and 31 December in each year. 'Debt Service Coverage Ratio' means the ratio of EBITDA to Debt Service for the Relevant Period."
Source: acme-corp-facility-agreement.pdf, Page 39, Clause 23.1(c) (Financial Covenants)
Compliance Certificate Grace Period
"The Borrower shall supply to the Facility Agent a Compliance Certificate within 30 days of the end of each financial quarter (and, in the case of the DSCR, within 45 days of each semi-annual testing date), certifying compliance with the financial covenants set out in Clause 23.1."
Source: acme-corp-facility-agreement.pdf, Page 39, Clause 23.3 (Compliance Certificates)
Scoring Criteria
| Condition | Score |
|---|---|
| All 3 covenants identified; all types classified as "financial"; all thresholds extracted verbatim; correct testing frequencies (quarterly for Leverage and ICR, semi-annual for DSCR); grace periods stated | 1.0 |
| All 3 covenants identified; thresholds correct; DSCR testing frequency stated as "quarterly" instead of "semi-annual" | 0.75 |
| Only 2 of 3 covenants identified | 0.50 |
| DSCR threshold extracted as "≥ 1.2" but testing period/frequency omitted | 0.75 for that covenant |
| Any covenant value fabricated (e.g., threshold not present in source) | 0.0 (case-level) |
Known Failure Modes
- Confusing the grace period for delivering the compliance certificate (30 / 45 days after quarter-end) with the covenant testing date itself — they are different.
- Classifying DSCR as "information covenant" because it involves financial statement delivery, rather than "financial covenant."
- Extracting EBITDA as the threshold instead of the ratio (e.g., outputting "EBITDA ≥ [amount]" instead of "Leverage ≤ 4.0×").
- Missing the DSCR semi-annual testing cadence and instead treating it as quarterly because the other two covenants are quarterly.
Regression Note
N/A — initial case