Bapcor has negotiated eased lender covenants for FY27, allowing higher leverage and lower fixed charge cover ratios to support its ongoing operational reset.
- Net leverage ratio raised to 3.5x EBITDA at Dec 2026
- Fixed charge cover ratio lowered to 1.30x EBITDA for FY27
- Covenants revert to stricter levels from Dec 2027
- Additional headroom aims to underpin turnaround efforts
- Lenders continue to back Bapcor's strategic reset
Revised Covenants Offer Breathing Room for Debt Management
Bapcor Limited (ASX:BAP) has secured a significant easing of its financial covenants with lenders for the 2027 financial year, a move designed to provide extra breathing space as the automotive retailer pushes through its operational turnaround. The key change is an increase in the net leverage ratio allowance to 3.5 times adjusted EBITDA at the half-year mark ending 31 December 2026, before tightening back to 3.0 times for the full year and beyond.
Fixed Charge Cover Ratio Reduced to Cushion Cash Flow
Alongside the leverage adjustment, Bapcor’s fixed charge cover ratio covenant has been relaxed to 1.30 times adjusted EBITDA for both the December 2026 and June 2027 testing dates. This is a notable reduction from the previous 1.75 times requirement, with the covenant scheduled to revert to the stricter level at the end of calendar 2027. These changes collectively grant Bapcor more flexibility in managing interest and fixed costs amid its ongoing business reset.
Lender Support Signals Confidence in Turnaround Strategy
Chief Financial Officer Kim Kerr acknowledged the lenders’ cooperation, stating the revised covenants provide "additional headroom" to support the company’s strategic initiatives. This backing is crucial as Bapcor continues to navigate the challenges that led to its FY26 statutory loss and subsequent capital raising efforts. The covenant adjustments complement the $200 million equity raise completed earlier in the year, which aimed to strengthen the balance sheet and reduce leverage from previous highs.
Implications for Investors and Next Steps
While the easing of covenants reduces immediate financial pressure, it also reflects the ongoing need for careful balance sheet management during the turnaround. Investors should monitor Bapcor’s compliance with these revised ratios and the operational progress underpinning the reset. The scheduled reversion to tighter covenant levels by December 2027 sets a clear timeline for the company to demonstrate sustained improvement in earnings and cash flow generation.
Bottom Line?
Bapcor’s covenant relief buys time for its turnaround but raises the stakes for delivering stronger earnings by late 2027.
Questions in the middle?
- Will Bapcor meet the tighter covenants reverting in December 2027?
- How will operational improvements translate into EBITDA growth over FY27?
- What is the lenders’ appetite if turnaround progress stalls beyond covenant reset?