Create operations
      Back to home
      1. Kls Help Desk
      2. Mastering Debt Tracking
      3. Create operations

      How to set up covenants in the Kls Desk Debt Tracking application?

      In this article, you'll find all our advice on how to create and set up covenants in your operations.

      Content

      1. Introduction
      2. Different types of covenant
      3. How to set up a covenant
      4. Duplicating a covenant
      5. Automatic notifications

      Definitions 

      Contractual covenant: Borrower covenant defined in the contract. In Debt Tracking, the list of contractual covenants is entered by the manager in the contractual framework tab.

      Covenant control: Materialization of the contractual framework. Depending on its recurrence, a covenant may take the form of one or more covenant controls. All covenant controls are visible in the tab of the same name.

      1. Introduction


       

      To begin, go to Debt Tracking > My operations > Operations follow-up > click on the desired operation > covenant list.

      You don't have access to Debt Tracking? Contact your manager or someone with the “Team Leader” role to be given Debt Tracking creation rights.

      Covenant parameters are set by the operation manager in the covenant list tab of your Debt Tracking operation. To create covenants, the operation base must be created first. See page on how to create an operation.

      The covenant list tab allows you to :

      • Centralize the contractual events to be monitored: the operation manager digitizes all the events he wishes to monitor, whatever their nature:
        • Financial covenants
        • ESG KPI
        • Controls to be carried out
        • Undertakings not to do
        • Confidential reminders
        • Any other covenant defined in the contract
      • Automate reminder notifications by setting control periods. In concrete terms, by publishing the covenants entered, the operation manager will automatically activate reminder notifications to be received by Borrower contacts and the management team. 

      The operation manager can set these notifications at any time. See page on how to set up automatic notifications.

      Each party can retrieve at any time the list of covenants entered by the operation manager and owed by the customer in their Debt Tracking area.

      2. The different types of covenants


      During set-up, the operation manager defines the nature of the control, which defines the behavior and expectations of the control:

      • Document: requires the Borrower to submit one or more supporting attachments when entering the response. Example of covenant: company accounts, reports, budgets, etc.
      • Financial element/Financial ratio/ESG criteria: a control value must be entered in order to respond to the covenant, with the possibility of submitting supporting attachments to accompany this value.
      • Control to check : does not require any action on the part of the Borrower. It is mainly used by the lead partner to check covenants to do or not to do without any particular control value or supporting documents.
      • Agent action: the only type that is invisible to the rest of the operation's stakeholders, and enables the operation management team to create internal reminders for each operation. As with other covenants, setting up an Agent Action automatically activates reminders for the operation manager. Agent action example: annual commission reminder

      3. How to set up a covenant

      In the contractual framework tab, click on “Create covenant”.

      The covenant creation page is divided into two parts:

      • Covenant details: in this area, you can copy and paste the elements of the contract. The description field lets you explain what is expected (all these fields are visible to stakeholders).
      • Control periodicity: 
        • The first test date corresponds to the date from which the element will be tested. 
        • The response delay is the number of days or months the Borrower has to respond to the covenant. 
        • Periodicity defines whether and how often the check is repeated.
        • The end date is the date on which monitoring of the element ceases.

      Note that the first test date + response time automatically defines the deadline for a covenant check.

      In the case of a document/check to be carried out or Agent Action covenant, only these fields need to be filled in. In the case of a covenant involving a financial element/ratio or ESG criteria, the following fields must be set in addition to those above:

      • Expected values: these may be the same throughout the loan, or different from one year to the next.
      • Margin grid: if the controlled value has an impact on the margin, you can enter the impact grid within the covenant.

      💡 Once you've entered your covenant, click on “Create covenant” and then on “Publish the covenant”. Once your covenant has been published, the platform will automatically calculate and create all future controls. They will be visible in the covenant control tab.

      Your operation must be published before you can publish a covenant. The action of publishing an operation does not automatically publish the covenant list; the action is performed separately. This allows you to use the tool to prepare for closing.

      Until the covenant is published, it is not visible to the lenders and the Borrower. They are also not activated, i.e. the associated controls do not appear in the covenant control tab. The associated automatic notifications are not activated.

      💡You can publish covenants one by one or in bulk:

      Example of documentary covenant entry: entry of the “semi-annual financial reporting” covenant: the Borrower must provide its financial reporting every year from 12/31/2022, until the end of the contract on 12/25/2028. Each year, the Borrower has until 06/30 to provide these documents:

      Example of ratio entry: entry of “R1 ratio”:

      Throughout the life of the contract, covenants may be modified. See page on how to modify a covenant.

      4. Duplicating a covenant

      Once you have finished creating a covenant, you can duplicate it.

      This is to enable the Credit Officer to easily recreate covenants, which may sometimes be similar in the same operation (such as test dates and certain other common settings).

      To duplicate a covenant, simply select the covenant(s) concerned, and a “Duplicate” button will appear in the top banner of the table.

      Once the covenant(s) has/have been duplicated, it/they will appear in “Covenant wording (Copy)” format, in “To be published” status. You can then modify them as required and publish them as new covenants.

      Please note: 

      • All covenant information is duplicated, and you can edit it before publication.
      • If the covenant to be duplicated has several versions, only the elements of the latest version are duplicated.
      • Covenant duplication only works within a single operation. It is not possible to duplicate a covenant within the contractual framework of another operation.

      5. Automatic notifications

      Once your covenant has been created and published, the associated controls are automatically created in the covenant control tab. 

      Automatic notifications will be sent to the Borrower and the operation management team at D-30, D-15, D-7 and D-1. If no response is received by the deadline, a notification is sent every 15 days. If a response is received, notifications stop automatically.

      Automatic notifications can be set by the operation manager at any time.

      Go to page: What notifications are sent to my stakeholders?
      Go to page: How to set up automatic notifications?