Bapcor Limited has obtained unanimous lender approval to temporarily ease its Net Leverage Ratio covenant, supporting its ongoing turnaround efforts through mid-2026.
- Net Leverage Ratio covenant temporarily increased from 3.0 to 3.5 times adjusted EBITDA
- Adjustment applies to December 2025 and June 2026 testing points
- Lenders unanimously support Bapcor’s turnaround program
- Covenant expected to revert to original level after June 2026
- Financial flexibility enhanced during operational improvement phase
Temporary Covenant Adjustment
Bapcor Limited (ASX, BAP), a key player in automotive retail and services, has announced a temporary increase in its Net Leverage Ratio covenant from 3.0 to 3.5 times adjusted EBITDA. This adjustment, approved unanimously by its lending syndicate, applies specifically to the financial testing points ending 31 December 2025 and 30 June 2026.
Supporting a Turnaround Strategy
The move signals strong lender confidence in Bapcor’s ongoing turnaround program aimed at improving both operational and financial performance. CFO Kim Kerr highlighted the importance of this support, noting that the temporary covenant relief provides the company with additional financial flexibility during a critical phase of restructuring and growth.
Implications for Financial Health
By allowing a higher leverage threshold temporarily, Bapcor can better manage its debt obligations without breaching covenant terms, which might otherwise restrict its strategic options. This breathing room is crucial as the company works to enhance earnings before interest, taxes, depreciation, and amortisation (EBITDA), the key metric underpinning the covenant.
Looking Ahead
Importantly, the covenant is set to revert to the original 3.0 times adjusted EBITDA level after the June 2026 testing point, underscoring the company’s commitment to restoring stronger leverage metrics. Investors will be watching closely to see how effectively Bapcor executes its turnaround plan and whether it can meet the more stringent covenant requirements thereafter.
Bottom Line?
Bapcor’s temporary covenant relief buys crucial time, but the real test lies in its ability to deliver sustained financial improvement.
Questions in the middle?
- What specific operational changes underpin Bapcor’s turnaround program?
- How will Bapcor’s adjusted EBITDA trend over the next two reporting periods?
- Could further covenant adjustments be necessary if turnaround targets are missed?