Financial covenants protect lenders and bondholders, and a breach can trigger penalties or default. Test the most common hospital and health-system covenants in one place and see how much cushion each one has.
How it works
Test hospital and health-system financial covenants in one place: debt service coverage, days cash on hand, current ratio and debt-to-capitalization, with the cushion or shortfall for each.
DSCR = (Excess of revenue over expenses + Depreciation & amortization + Interest) ÷ Debt service
Days cash on hand = Unrestricted cash ÷ [(Operating expenses − D&A) ÷ 365]
Current ratio = Current assets ÷ Current liabilities
Debt to capitalization = Long-term debt ÷ (Long-term debt + Unrestricted net assets)Common uses
- Monthly covenant monitoring and forecasting
- Lender, bondholder and HUD reporting
- Board finance committee briefings
Worked example
The calculator above opens with this example. Change any input to see the results update instantly, or select Reset to return to these figures.
| Excess of revenue over expenses | $7,400,000 |
| Depreciation & amortization | $15,800,000 |
| Interest expense | $6,900,000 |
| Annual debt service (principal + interest) | $14,200,000 |
| Unrestricted cash & investments | $52,000,000 |
| Total operating expenses (annual) | $298,200,000 |
| Current assets | $96,000,000 |
| Current liabilities | $61,000,000 |
| Long-term debt | $118,000,000 |
| Unrestricted net assets (equity) | $142,000,000 |
| Minimum debt service coverage | 1.25 × |
| Minimum days cash on hand | 75 days |
| Minimum current ratio | 1.5 × |
| Maximum debt to capitalization | 60% |
| Covenants met | 3 of 4 |
| Debt service coverage | 2.12× |
| Days cash on hand | 67.2 days |
| Current ratio | 1.57× |
| Debt to capitalization | 45.4% |
At least one covenant is breached: review cure provisions, consultant-call requirements and notice deadlines in the loan or bond documents. Covenant definitions differ by agreement (for example, treatment of unrealized gains or one-time items); always apply the governing document.
Interpreting the results
- Track covenants monthly on a trailing basis, even when they are tested only annually, so a breach never comes as a surprise.
- The dollar cushion shows how much cash flow, cash or current assets could be lost before a breach.
- HUD-insured and bond-financed hospitals often face consultant-call thresholds above the default level; track both.
Frequently asked questions
What are the most common hospital debt covenants?
Hospital bonds and loans most often require a minimum debt service coverage ratio and a minimum days cash on hand, and may also include a current ratio, a debt-to-capitalization limit or other leverage tests.
What happens if a covenant is breached?
Consequences depend on the agreement. Many bond documents first require hiring a management consultant and adopting an improvement plan; repeated or more severe breaches can become events of default. Review cure periods and notice requirements immediately.
Why calculate the dollar cushion?
Ratios alone do not show how close a breach is in practical terms. The dollar cushion shows how much cash flow, cash or current assets could be lost before a covenant is breached, which is easier to plan around.
Related calculators
- Debt Service Coverage Ratio (DSCR) Calculator: DSCR, covenant cushion and maximum supportable debt.
- Days Cash on Hand: Liquidity in days of operating expenses, tested against a covenant.
- Operating & EBIDA Margin Calculator: Operating margin, operating EBIDA margin and excess margin for hospitals and health systems.
- Financial Ratio Analyzer: 18 liquidity, leverage, efficiency and profitability ratios from the statements.
- Altman Z-Score Calculator: Bankruptcy-risk score and zone for public, private and non-manufacturing companies.