It's September. Next year you have $18M of debt maturing in April. Rates are up 200 bps. Your bankers are talking about "tightening conditions." The CEO asks: "are we OK?"
The answer is not "yes, we have $4M of cash." That's liquidity, not structure. The CEO's question is solved with THREE numbers the mature treasurer always has ready: how much matures each year (maturity ladder), how tight is the main covenant (Debt/EBITDA today vs limit), and what happens if EBITDA drops 30% (stress scenario).
Debt structure is the difference between a company that survives a bad year and one that ends up in technical default by numbers, not by operations. This module teaches you to design it well before you need it.
By the end of this module you'll have it down. Let's go.
Your company has $40M of debt. All matures in 2027 (5 years from today). EBITDA $12M. How serious is the concentration?
In plain language
Before the mechanics, the four basic questions.
Why do this at all?
So the company survives bad years without entering financial crisis by structure, not by operations. A company with good operations but bad structure (all maturing same year, tight covenant, no lines) can fall into technical default in a moderate recession. One with average operations and solid structure survives even big shocks.
Who designs it?
Treasury with CFO. Approved by board (strategic decision, not tactical). Negotiated with banks. Reported annually to board in financial policy review. Audited by external banks at every renewal.
When is it designed?
In annual financial policy review. Before each new debt issuance. After material events (M&A, recession, significant rate change). When the largest debt maturity approaches (24 months before, not 6 months before).
What if we neglect it?
Maturity cliff catches you in the wrong market. Covenant breaches you in moderate EBITDA drop. Bank accelerates debt at peak stress moment. Technical default → restructuring or bankruptcy. All avoidable with anticipated design.
Andina S.A. — the inherited debt structure
When the new CFO arrived at Andina, he found a typical mid-market family company debt structure: $40M total, 70% concentrated in a 2024 syndicated loan that all matures at once in 2028. Main covenant: Debt/EBITDA < 3.5x. No additional committed credit lines.
With current EBITDA of $12M, Debt/EBITDA = 3.33x. Covenant headroom: 5%. An EBITDA drop of just 5% (to $11.4M) breaches the covenant. Bank can accelerate.
The problem is NOT the amount of debt. It's the concentration (2028 cliff) and the minimal covenant headroom. The new CFO has 18 months to redesign the structure before the cliff.
The visual below lets you see the current maturity ladder + stress EBITDA + simulate a refinancing that smooths the cliff. Watch how covenant headroom changes in each scenario.
Ladder and covenant live
Three levers: the shape of the ladder (concentrated vs staggered), the EBITDA stress (moderate or severe recession), and the decision to refinance the cliff ahead of time.
Move the stress slider up: watch Debt/EBITDA push against the covenant. Activate refinancing: the concentration spreads out and total debt doesn't change, but structural risk drops dramatically.
Interactive visual
Andina — maturity ladder and covenant headroom
See your debt staggered by year and your Debt/EBITDA vs the bank covenant. Stress the EBITDA or smooth the year-3 cliff with refinancing.
EBITDA
$12.0M
Debt / EBITDA
3.33x
Max covenant: 3.5x
Covenant headroom
5%
Tight headroomEBITDA stress
−0%
Refinance year-3 cliff (extend 5 more years)
What you are seeing
Two critical lessons: (1) Maturity concentration — if everything matures the same year, you depend on credit market conditions that specific day. If rates rise or the bank turns conservative, refinancing costs more or fails. Maturity diversification is insurance against market timing. (2) Covenant headroom is your REAL safety margin, not cash in the bank. A Debt/EBITDA < 3.5x covenant means that when EBITDA drops, you approach breach even without taking new debt. Headroom must be designed to survive the stress scenario, not the central case.
Mental rule: your financial security is not cash in the bank. It is the combination of (1) diversified maturity ladder so you don't depend on a specific day, (2) sufficient covenant headroom to survive stress scenarios, and (3) committed pre-approved credit lines you can activate without negotiating.
A company with $5M in cash and $40M of debt maturing next year is in worse position than one with $1M in cash, debt staggered over 7 years, and a $10M pre-approved line. Cash is symptom; structure is cause.
The mechanics: how to design healthy debt structure
- Diversify maturities over 5-7 years with bumps per year. Ideally, no year should have >25% of total debt. If you have an inevitable cliff, have the refinancing plan ready 24 months before.
- Mix fixed and variable by rate cycle. In low rates, fix more long-term. In high rates with expectation of decline, keep variable to capture the drop. Never 100% in one — flexibility matters.
- Design covenants with headroom for stress scenario. If your covenant is Debt/EBITDA < 3.5x and your base case is 2.5x, in stress with EBITDA −30% you go up to 3.6x → breach. Headroom must be designed for 3.0x base case leaving 3.5x for stress.
- Keep committed unused credit lines. Pre-approved lines you can activate without negotiating are the cheapest insurance against crisis. Cost ~0.5% annual fee. The price of not having them in a crisis: incalculable.
- Relationship with 2-3 banks, not monopoly. A single bank knows you very well but you have no alternative when they tighten conditions. With 2-3, you maintain options and negotiation power.
- Report covenant headroom monthly to the board. One line: "Current Debt/EBITDA = X, covenant max = Y, headroom = Z%, sensitivity EBITDA −20% = breach yes/no." If the board doesn't see this number, they have no information to judge financial risk.
- Liquidity (cash). What you have today. Useful for 30-90 days. NOT structural protection — it runs out.
- Committed credit lines. Pre-approved capital you can activate without negotiating. Costs small annual fee. Gives 6-12 months additional runway. CRITICAL for any company with >$10M operations.
- Diversified debt structure with headroom. Your long-term protection. Staggered maturities, comfortable covenants, fixed/variable mix, relationships with multiple banks. This is the protection that matters when the crisis lasts more than one quarter.
- Practical rule: the three are complementary. Cash without lines + bad structure = vulnerable. Cash + lines + bad structure = 12-18 month window to fix. Cash + lines + solid structure = company that survives any cycle.
Adversarial check
Adversarial check
1.Your CEO tells you: "we have $5M in cash, we're fine for any crisis." What do you answer?
2.Your bank wants to tighten covenants at next renewal: from Debt/EBITDA < 3.5x to < 3.0x. Your current ratio is 2.8x. What do you argue?
3.What is the most important difference between liquidity and solvency?
Exit checklist
Suggested re-review: every time a big maturity approaches (24 months before), or when rates change materially. Module 3.4 (working capital) and 3.5 (bank relationships) complement this.
Optional
Go deeper
Sources and books to dig into the original material