How to Prepare for Your Bank's Annual Review of Credit Facilities.

Short answer: Treat the annual review as a credit decision, not a request for last year's accounts. Start with the signed finance documents and the bank's decision timetable. Build one reconciled pack showing current performance, covenant calculations under the agreement's definitions, a base and downside forecast, collateral or borrowing-base support where relevant, a direct explanation of variances, and a precise request. If you expect a breach or cash shortfall, raise it before you submit a compliance certificate—not for the first time in the meeting.

When the bank asks for “updated financials,” the deadline can look administrative. It is not. The review may influence the bank's internal risk assessment, its willingness to renew or extend a facility, the information or security it requires, and the terms it is prepared to offer. The owner or CFO needs to answer two questions at once: Can the company meet its obligations? and Why should the bank remain comfortable with the credit over the next year?

This is an international, borrower-side guide. Practices differ by lender, facility and jurisdiction. Your executed finance documents, the bank's written request, governing law and advice from your legal, accounting and tax advisers control the actual requirements.

First establish what decision the bank is making

An annual review and a renewal are not necessarily the same event. A committed facility may continue beyond the review date. A short-term line may expire unless renewed. The bank may also be considering an extension, an increase, an amendment, a waiver, a pricing reset or updated security. Do not prepare until the relationship manager confirms the decision.

Ask for five points in writing:

1. Decision: Is this a routine annual review, a renewal, an extension, an amendment, a new-money request, or several of these?
2. Dates: When is the borrower pack due, when does credit committee consider it, and when must documents be signed?
3. Scope: Which facilities, borrowers, guarantors and related entities are in the review?
4. Requirements: What exact documents, forms, testing dates, valuations, certificates and KYC updates are required?
5. Open issues: What questions, exceptions or conditions from the last review remain unresolved?

If the bank does not provide a complete list, send your proposed index and ask it to identify gaps. That creates a shared scope early and reduces late requests.

A 30-day preparation plan

If you have ten days rather than thirty, keep the sequence and compress it. Establish the contractual facts and current liquidity first. Do not spend the first week polishing slides while covenant calculations or reporting obligations remain uncertain.

Rebuild the review from the executed documents

The facility agreement is only one part of the file. Assemble the signed facility or credit agreement, amendments, waiver letters, security documents, guarantees, fee letters, hedging documents where relevant, prior compliance certificates, borrowing-base forms, the last credit approval conditions communicated to you, and material correspondence.

Create an obligation map with the exact clause or document source for each item:

• facility limits, currencies, availability, purpose and current utilization;
• maturity, annual review, extension and cancellation dates;
• borrowers, guarantors, security providers and the group perimeter;
• financial-statement, budget, certificate, valuation and other reporting deadlines;
• financial covenant definitions, thresholds, test dates and calculation forms;
• borrowing-base definitions, eligibility rules, reserves and concentration limits;
• affirmative and negative undertakings, including restrictions on debt, liens, distributions, capex, acquisitions, disposals and changes of control;
• draw conditions, representations, notice obligations, grace periods, cure rights and events of default;
• pricing grids, review fees, commitment fees and any margin consequence tied to leverage or reporting; and
• prior waivers, reservations, exceptions and promised follow-up actions.

The point is not to summarize the documents from memory. It is to create a traceable control sheet that tells finance, management and advisers what must be delivered, calculated, disclosed or requested.

Build one bank-ready evidence pack

Exact requests vary, but a well-controlled pack often includes:

• latest audited annual financial statements and audit or review findings;
• current year-to-date management accounts with prior-year and budget comparisons;
• a current debt schedule covering lender, borrower, facility, limit, drawn amount, currency, rate, repayment, maturity, security and covenant status;
• the completed compliance certificate and calculation support, if contractually required;
• a 12- to 18-month integrated forecast, with a shorter 13-week cash view when liquidity is tight;
• accounts-receivable, accounts-payable and inventory aging, borrowing-base certificates or collateral schedules where relevant;
• capex, tax, insurance, legal, regulatory and KYC information required by the documents or the bank's request;
• information on material customers, suppliers, contracts, disputes, ownership or management changes; and
• a short management note explaining performance, variances, risks, actions and the facility request.

These categories reflect the way banks monitor commercial credit, not a universal checklist. The US Office of the Comptroller of the Currency's Commercial Loans handbook directs examiners to consider current and prior statements, adverse trends, contingent liabilities, operating cash flow, collateral and covenant monitoring. The NCUA's commercial-loan administration guidance similarly addresses annual review, risk ratings, collateral and covenant testing. In the UAE, the Central Bank's credit-worthiness rule says banks should obtain regular audited annual statements from corporate customers required to keep accounts and remain informed of major business changes. These sources explain why the questions arise; they do not replace your own agreement.

Reconcile the numbers before explaining the story

A bank can work with a difficult year more easily than with numbers that do not agree. Before writing the narrative, tie the audited statements, management accounts, covenant model, forecast, debt schedule, borrowing-base report and management presentation to one controlled source.

Document every bridge that a credit reviewer may need:

• audited closing balance sheet to current opening balances;
• statutory or reported earnings to management EBITDA;
• management EBITDA to covenant EBITDA under the agreement;
• cash in the balance sheet to cash permitted for net-debt calculations;
• gross debt to net debt and total debt to facility exposure;
• revenue and margin actuals to budget and the prior bank forecast;
• accounts-receivable and inventory ledgers to borrowing-base support; and
• ending cash in the integrated forecast to the liquidity schedule.

Label adjustments as contractual, accounting or management-view items. Do not place them in one undifferentiated “add-backs” line.

Calculate covenants using the agreement's definitions

Do not calculate leverage, interest cover or debt-service coverage from a generic formula. Extract the defined terms and follow them literally. The result can change with the testing period, group perimeter, currency conversion, permitted cash, lease treatment, acquisition annualization, exceptional items, synergies, capex, taxes, shareholder debt and the treatment of unused commitments.

The Association of Corporate Treasurers' Borrower's Guide to the LMA's Investment Grade Agreements explains that compliance certificates are delivered with relevant accounts to evidence covenant tests, and that accounting-basis changes can affect whether the covenants are met. It also cautions borrowers to seek advice promptly when a potential financial covenant breach emerges. Your facility may use different documentation, but the control principle is the same: calculate from the signed definitions and keep the evidence.

For each covenant, retain a worksheet showing:

1. the test date and period;
2. the clause, schedule and defined terms used;
3. each source account and adjustment;
4. the actual result, threshold and headroom;
5. the base and downside forecast result for future test dates; and
6. the preparer, reviewer and approval date.

Illustrative leverage bridge: assume the agreement sets maximum net leverage at 3.50x. If qualifying debt is 12.4, permitted cash is 1.2 and covenant EBITDA is 3.6, net leverage is 3.11x. If downside covenant EBITDA falls to 3.1 with debt and permitted cash unchanged, leverage becomes 3.61x and would exceed that illustrative threshold. The useful conclusion is not the ratio itself. It is that management needs to identify the testing date, available actions and lender discussion before the downside becomes an actual certificate.

This example is deliberately generic. Use your agreement's units, definitions, rounding rules and adviser review.

Forecast the credit decision, not just the budget

The bank needs to understand how the facility is repaid and how risk changes after the review. A revenue-and-EBITDA budget is not enough. Build an integrated forecast connecting profit and loss, balance sheet, cash flow and the debt schedule.

At minimum, show a base case and a credible downside for:

• revenue, gross margin, operating costs and EBITDA;
• working-capital days and cash conversion;
• maintenance and growth capex;
• interest, fees, principal and other fixed payments;
• facility drawings, repayments, utilization and availability;
• borrowing-base capacity or collateral coverage where applicable;
• covenant results and headroom at every test date; and
• minimum cash, seasonal peak borrowing and refinancing dates.

The Federal Deposit Insurance Corporation's Loans section of its examination manual describes ongoing performance dialogue and covenant checks and, for syndicated lending, an annual full credit analysis. It also warns against overly optimistic projections in higher-leverage analysis. For the borrower, the practical response is to make assumptions visible, reconcile the forecast to recent performance, and show what management will do if the downside begins to occur.

Write the difficult explanation before the bank asks

If performance missed plan, write a one-page variance note. For each material variance, state:

1. what changed and when;
2. the quantified effect on revenue, earnings, cash and covenant headroom;
3. whether the cause is temporary, structural or still uncertain;
4. what management has already done and what evidence shows it is working;
5. what remains at risk; and
6. how the base and downside forecasts now reflect it.

Avoid explanations such as “timing,” “one-off” or “market conditions” unless you quantify them. If sales slipped because a customer delayed an order, show the order status and cash timing. If margin fell because of input costs, show the price, sourcing or mix response. If receivables stretched, show the aging, concentration, disputes, collections plan and forecast.

Disclose material bad news early. That includes an actual or forecast covenant breach, late reporting, tax or payment arrears, an uninsured loss, a major customer departure, litigation, management departure or a liquidity shortfall. The exact notification obligation and legal consequence depend on your documents. Do not guess, delay or sign a certificate you cannot support; involve counsel and the appropriate advisers.

Make one precise facility request

Do not make the bank infer what you need. State the request in a single paragraph, then show the evidence beneath it.

A precise request identifies:

• which facility and legal entities are affected;
• the amount, currency, purpose and required availability date;
• whether you want unchanged continuation, renewal, extension, increase, amendment, waiver, pricing change or release of security;
• the proposed tenor, repayment or clean-down profile;
• the base and downside sources of repayment;
• the security, guarantees and covenants assumed in your model; and
• the latest date by which approval and documentation must be complete.

Separate must-have terms from negotiable preferences. An extension needed to avoid expiry is different from a request for a lower margin. A temporary waiver is different from resetting a covenant the business can no longer operate within. If several outcomes are acceptable, rank them rather than presenting the bank with an undefined wish list.

Prepare the people, not only the pack

The meeting should be a controlled credit discussion. The CFO should own the reconciled numbers and facility request. The owner or CEO should explain strategy, performance and management action. Operational leaders should attend only where they can answer a material issue better than management can.

A practical 60-minute agenda is:

1. 5 minutes: decision required and requested timetable;
2. 10 minutes: business update and performance against the prior plan;
3. 15 minutes: cash flow, debt, covenant and collateral position;
4. 10 minutes: base case, downside and management actions;
5. 10 minutes: facility request and proposed terms; and
6. 10 minutes: questions, missing information, decision path and next actions.

Rehearse the questions that can change the bank's view: Why did cash conversion weaken? How concentrated are customers? Which receivables are disputed? What happens if the forecast is three months late? Which costs can actually be stopped? What owner distributions are planned? What capex is committed? When does liquidity reach its lowest point? Which covenant has the least headroom? What other lenders, guarantees or liens exist?

What commonly weakens the review

• Treating expiry as administration. A facility with an approaching maturity or renewal date needs a decision timetable and contingency, not just submitted accounts.
• Sending unreconciled versions. Different EBITDA, debt, cash or forecast figures make every explanation harder to trust.
• Using management definitions for contractual tests. The agreement, not the board pack, defines covenant compliance.
• Burying known problems. A late surprise changes the conversation from performance to credibility.
• Forecasting only the plan. Without a downside, management cannot show headroom or timely actions.
• Asking for more money without sources and uses. The bank needs amount, purpose, timing, repayment and downside protection.
• Ignoring prior conditions. Unresolved waivers, reporting exceptions and promised actions return in the next review.
• Failing to close the process. Verbal requests after the meeting need a written action log, named owners and dates.

If the review is already in trouble

Separate four situations immediately: an actual covenant breach, a forecast breach, a late information delivery, and a current or forecast liquidity shortfall. They may overlap, but they are not the same problem and may have different notice, waiver and decision paths.

Then:

1. preserve the executed documents, calculations and correspondence;
2. confirm current cash, available facilities, payment obligations and a 13-week cash forecast;
3. have legal and financial advisers check the definitions, notices, grace periods and certificate language;
4. quantify the cause, duration, corrective actions and requested lender response;
5. prepare base, downside and contingency cases; and
6. contact the bank with facts and a proposed process before making an unsupported certification.

A forecast breach can create time to act. An undisclosed actual breach can remove it. The objective is not to present a perfect business; it is to give the bank a reliable view of the risk and a credible plan.

Borrower checklist before submission

• The bank's decision, committee date and signing deadline are confirmed.
• Every facility, borrower, guarantor and security provider is in scope.
• The document request is indexed, owned and complete.
• Financial statements, management accounts, debt schedule and forecast reconcile.
• Covenants use the executed definitions and have independent review.
• Base and downside liquidity, debt service and headroom are visible by test date.
• Material variances, risks and adverse developments are quantified and disclosed.
• The facility request is precise and tied to sources, uses and repayment.
• Meeting speakers use the same numbers and know the difficult questions.
• Every follow-up item will be logged with an owner and deadline.

How Alehar can help

When the deadline is close or the credit story is complicated, Alehar can help management turn the facility documents, financials and forecast into one decision-ready lender pack, model covenant headroom, prepare the meeting and frame the facility request. For related background, read our guide to debt covenants and use the Debt Capacity Calculator as an initial planning reference—not as a substitute for the bank's or agreement's calculations.

If the review also requires a renewal, amendment, refinancing or new facility, see Raising Equity or Debt or contact Alehar.