{"concept_id":"ALTSS-CREDIT-043","slug":"debt-to-ebitda","canonical_name":"Debt-to-EBITDA (Leverage Multiple)","aliases":["leverage multiple","total leverage","gross leverage"],"kind":"metric","authority":"industry","facets":["MET"],"domains":["PRIVATE-CREDIT","PRIVATE-EQUITY"],"display_title":"Debt-to-EBITDA (Leverage Multiple)","search_aliases":["debt to ebitda ratio","what is leverage multiple","net leverage vs gross leverage","how many turns of leverage","senior leverage ratio","total net leverage covenant"],"one_sentence_definition":"Debt-to-EBITDA is the ratio of a borrower's debt to its EBITDA, usually over the last twelve months, expressed as a multiple (\"turns\"); leveraged lenders use it to size loans and commonly test it in financial covenants.","plain_english":"A company with $50 million of EBITDA and $275 million of debt is levered 5.5 times, or \"5.5 turns\": it would take five and a half years of current EBITDA, before interest, tax and capital spending, to repay its debt. Lenders use the multiple to size loans, set covenants and price risk. Because both the debt and the EBITDA can be defined in different ways, the same company can show several different leverage figures.","parent_concepts":["leverage"],"child_concepts":[],"related_concepts":["ebitda","adjusted-ebitda","interest-coverage-ratio","maintenance-covenant","covenant-headroom","fixed-charge-coverage-ratio","net-debt","first-lien"],"comparison_concepts":[],"not_the_same_as":[{"slug":"leverage","distinction":"Leverage in the risk sense is any use of borrowed money to amplify exposure, including at fund level. Debt-to-EBITDA is one specific measure of a company's leverage."},{"slug":"interest-coverage-ratio","distinction":"Interest coverage measures the ability to pay interest. Leverage measures the size of the debt relative to earnings."},{"slug":"ev-ebitda-multiple","distinction":"The enterprise value (EV) to EBITDA multiple values the business; debt-to-EBITDA measures its leverage, and dividing the second by the first gives the loan-to-value through the debt."}],"formula_ids":["F-CREDIT-043-gross-and-net-leverage"],"worked_examples":[{"title":"Illustrative gross and net leverage","paragraphs":["A borrower has $225m of first-lien and $50m of second-lien debt ($275m total), $25m of cash and $50m of EBITDA over the last twelve months. Gross leverage is **5.5x** and net leverage is **5.0x**."],"calc":{"fn":"leverage","inputs":{"total_debt":275,"ebitda":50,"cash":25},"expected":{"gross_leverage":5.5,"net_leverage":5},"tol":0.0005}},{"title":"Senior (first-lien) leverage","paragraphs":["First-lien leverage counts only debt at or above the first lien: $225m / $50m = **4.5x**. A first-lien lender looks at this figure; a second-lien lender cares about both 4.5x (where its exposure starts) and 5.5x (where it ends)."],"calc":{"fn":"leverage","inputs":{"total_debt":225,"ebitda":50},"expected":{"gross_leverage":4.5},"tol":0.0005}},{"title":"Effect of EBITDA add-backs","paragraphs":["If the credit agreement allows $5m of projected cost savings to be added back, covenant EBITDA becomes $55m and gross leverage falls to **5.0x** with no change in debt or cash flow. Half a turn of reported deleveraging comes from the definition alone."],"calc":{"fn":"leverage","inputs":{"total_debt":275,"ebitda":55},"expected":{"gross_leverage":5},"tol":0.0005}}],"sections":[{"heading":"Conventions that change the number","paragraphs":["- **Gross vs net.** Net leverage deducts cash. Documents often cap the cash that can be netted or require it to be unrestricted.\n- **Which debt.** Total, senior secured, or first-lien. Does it include payment-in-kind (PIK) notes at holding-company level, finance leases, earn-outs or drawn revolvers?\n- **Which EBITDA.** Reported vs [adjusted EBITDA](/glossary/adjusted-ebitda); last twelve months vs annualised run-rate; pro forma for acquisitions, including the target's pre-acquisition EBITDA and expected synergies.\n- **Timing.** Leverage at closing vs at each quarterly test date.","Each choice can change the reported multiple for the same business; in the third example above, one add-back alone moves it by half a turn."]},{"heading":"How lenders use leverage","paragraphs":["- **Sizing**: maximum leverage at entry.\n- **[Maintenance covenants](/glossary/maintenance-covenant)**: a maximum total or senior net leverage tested quarterly, often stepping down over time.\n- **[Incurrence tests](/glossary/incurrence-covenant)**: leverage limits that apply only when the borrower takes on more debt, pays dividends or makes acquisitions.\n- **Pricing grids**: margins that step down as leverage falls.","Lenders also read leverage through their own tranche: a second-lien lender's position runs from first-lien leverage to total leverage."]},{"heading":"How LPs read portfolio leverage","paragraphs":["Weighted-average leverage across a direct-lending portfolio, and its trend, is a common diligence item in market practice. Check:","- the EBITDA definition behind the number;\n- whether it is measured at entry or currently;\n- how borrowers with negative or near-zero EBITDA are treated, since they are often excluded or measured on revenue instead (see [recurring revenue lending](/glossary/recurring-revenue-lending)).","Leverage alone says nothing about the interest burden, so read it with [interest coverage](/glossary/interest-coverage-ratio), especially when base rates have risen."]}],"classification_rules":[],"calculation_rules":[],"common_mistakes":["Comparing leverage across lenders or managers without aligning EBITDA definitions and add-backs.","Netting all balance-sheet cash, including trapped or restricted cash.","Ignoring PIK accrual and drawn revolvers, both of which raise debt between test dates.","Reading falling leverage as deleveraging when it comes from EBITDA adjustments or acquisitions measured pro forma."],"edge_cases":["For companies with negative EBITDA the ratio is meaningless. Lenders switch to revenue-based measures such as debt to annual recurring revenue.","An acquisition financed with debt can lower pro forma leverage if the acquired EBITDA, including projected synergies, is large enough, even though total debt rose."],"external_standard_mappings":[],"source_ids":["SRC-ACAD-BERLIN-NINI-YU-2019","SRC-ACAD-IVASHINA-VALLEE-2020","SRC-US-OCC-CH-LEVERAGED-LENDING-2008"],"citations":[{"source_id":"SRC-US-OCC-CH-LEVERAGED-LENDING-2008","pinpoint":"p. 2; glossary pp. 59-60, 62","supports":"Total debt/EBITDA and senior debt/EBITDA are the operating leverage ratios used to identify leveraged loans; covenant headroom compares projected debt/EBITDA with the covenant level; EBITDA measures profitability, not cash flow; incurrence covenants test leverage pro forma only when the borrower acts","source":{"source_id":"SRC-US-OCC-CH-LEVERAGED-LENDING-2008","title":"Comptroller's Handbook: Leveraged Lending","publisher":"Office of the Comptroller of the Currency (OCC)","document_type":"supervisory handbook","url":"https://www.occ.gov/publications-and-resources/publications/comptrollers-handbook/files/leveraged-lending/pub-ch-leveraged-lending.pdf","publication_date":"February 2008 (reputation-risk references struck through as of 2025-03-20 under OCC Bulletin 2025-4)","jurisdiction":"US","status":"published booklet (not rescinded)","last_verified":"2026-10-01"}},{"source_id":"SRC-ACAD-BERLIN-NINI-YU-2019","pinpoint":"p. 10 (incl. nn. 23-24)","supports":"Leverage and senior leverage ratios are among the most common financial maintenance covenants, typically tested quarterly on a contractually defined EBITDA that often differs from GAAP EBITDA","source":{"source_id":"SRC-ACAD-BERLIN-NINI-YU-2019","title":"Concentration of Control Rights in Leveraged Loan Syndicates","authors":"Mitchell Berlin; Greg Nini; Edison G. Yu","publisher":"Federal Reserve Bank of Philadelphia (Working Paper 19-41)","document_type":"working paper","url":"https://www.philadelphiafed.org/-/media/FRBP/Assets/working-papers/2019/wp19-41.pdf","year":2019,"publication_date":"WP 19-41, October 2019","jurisdiction":"US","status":"published working paper","last_verified":"2026-10-01"}},{"source_id":"SRC-ACAD-IVASHINA-VALLEE-2020","pinpoint":"p. 16 and n. 17","supports":"Debt incurrence is typically restricted through a maximum Debt/EBITDA ratio; credit-agreement EBITDA follows a contractual definition that can add back items such as pro forma cost savings (on average twelve modifications to the standard definition)","source":{"source_id":"SRC-ACAD-IVASHINA-VALLEE-2020","title":"Weak Credit Covenants","authors":"Victoria Ivashina; Boris Vallee","publisher":"National Bureau of Economic Research (Working Paper 27316)","document_type":"working paper","url":"https://www.nber.org/papers/w27316","year":2020,"publication_date":"NBER WP 27316, June 2020","jurisdiction":"US","status":"working paper; published version listed by NBER as Management Science 71(12), 9998-10021 (2025), not opened","last_verified":"2026-10-01"}}],"faq":[],"seo":{},"first_published":null,"last_reviewed":"2026-10-01","last_modified":"2026-10-01","content_version":"2.0.0","url":"https://altss.com/glossary/debt-to-ebitda","json_url":"https://altss.com/reference/concepts/debt-to-ebitda.json","title":"Debt-to-EBITDA (Leverage Multiple)","formulas":[{"formula_id":"F-CREDIT-043-gross-and-net-leverage","concept_id":"ALTSS-CREDIT-043","label":"Gross and net leverage","plain":"Gross leverage = total debt / EBITDA; net leverage = (total debt − cash) / EBITDA","latex":"\\text{Gross}=\\frac{D}{\\mathrm{EBITDA}},\\qquad \\text{Net}=\\frac{D-C}{\\mathrm{EBITDA}}","variables":[{"symbol":"D","meaning":"debt as defined: funded debt, usually including finance leases; for senior or first-lien leverage, only debt ranking at or above that level"},{"symbol":"C","meaning":"unrestricted cash netted against debt, often capped in credit agreements"},{"symbol":"EBITDA","meaning":"last-twelve-months EBITDA as defined in the credit agreement, usually adjusted and pro forma for acquisitions"}],"convention_note":"Credit agreements define both the numerator and the denominator. Covenant EBITDA commonly allows add-backs (cost savings, synergies, one-off items), sometimes capped. Always state gross or net, which debt layers are included, and which EBITDA definition is used."}],"sources":[{"source_id":"SRC-ACAD-BERLIN-NINI-YU-2019","title":"Concentration of Control Rights in Leveraged Loan Syndicates","authors":"Mitchell Berlin; Greg Nini; Edison G. Yu","publisher":"Federal Reserve Bank of Philadelphia (Working Paper 19-41)","document_type":"working paper","url":"https://www.philadelphiafed.org/-/media/FRBP/Assets/working-papers/2019/wp19-41.pdf","year":2019,"publication_date":"WP 19-41, October 2019","jurisdiction":"US","status":"published working paper","last_verified":"2026-10-01"},{"source_id":"SRC-ACAD-IVASHINA-VALLEE-2020","title":"Weak Credit Covenants","authors":"Victoria Ivashina; Boris Vallee","publisher":"National Bureau of Economic Research (Working Paper 27316)","document_type":"working paper","url":"https://www.nber.org/papers/w27316","year":2020,"publication_date":"NBER WP 27316, June 2020","jurisdiction":"US","status":"working paper; published version listed by NBER as Management Science 71(12), 9998-10021 (2025), not opened","last_verified":"2026-10-01"},{"source_id":"SRC-US-OCC-CH-LEVERAGED-LENDING-2008","title":"Comptroller's Handbook: Leveraged Lending","publisher":"Office of the Comptroller of the Currency (OCC)","document_type":"supervisory handbook","url":"https://www.occ.gov/publications-and-resources/publications/comptrollers-handbook/files/leveraged-lending/pub-ch-leveraged-lending.pdf","publication_date":"February 2008 (reputation-risk references struck through as of 2025-03-20 under OCC Bulletin 2025-4)","jurisdiction":"US","status":"published booklet (not rescinded)","last_verified":"2026-10-01"}]}