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Stress Testing Loan Covenants

Stress Testing Loan Covenants

Stress Testing Loan CovenantsOverview: It is important to be able to stress test many variables, applying various techniques to stress testing the portfolio. Stress testing loan covenants is one such approach that many find useful.


For a long time the Madison System has enabled clients to identify loans that violate loan covenants, or come close to violating the covenants. We have recently added a new feature to one such report – the ability to stress LTV and DSCR covenants by changing the value of collateral or businesses supporting loans to stress LTV, and by changing the income of collateral or businesses to stress DSCR (Debt Service Coverage Ratio).

In this report users may determine the amount of the stress to either collateral value or income, or both, and the Madison System will then recalculate the LTV and DSCR for each loan to display those that violate the covenants which are highlighted in red, or those that come within 15% of violating the covenants which are highlighted in yellow. The report can be set to display only violations, only violations and near violations, or all loans.