When EBITDA includes the revenue you didn't earn

Two European bonds in the market this month, Intertek and InPost, add back to EBITDA losses from pandemics, natural disasters, acts of God, war, cyber attacks, strikes, supply chain disruption and tariffs. I was asked this week what "act of God" means. The better question is what gets added back.

Neither document defines the term. Under New York law, which governs both indentures, an act of God is a natural event with no human cause that couldn't reasonably have been foreseen or prevented. A pandemic probably qualifies; war, strikes and tariffs don't, which is why the lists name those separately. The definition settles little here, because each list ends with a catch-all. Intertek's runs to "any other similar or equivalent disaster or disruption beyond the control of the Company", and InPost's to "similar periods of disruptions or uncertainties caused by governmental actions or other acts or events beyond the control of the Issuer and its Restricted Subsidiaries". An ordinary trading setback qualifies if the company can link it, even indirectly, to a listed event or something similar outside its control.

The add-back isn't limited to costs. Intertek can add back "any lost or foregone revenue" and any other negative financial impact "directly or indirectly attributable" to the event. InPost can add back "revenue reductions". That puts revenue the business never earned into EBITDA, at the company's own estimate. There's no cap, no time limit and no requirement that the event be one-off. Both documents also add back "any other items classified by" the company as "extraordinary, one-off, one-time, exceptional, unusual or nonrecurring", so the disruption list is one of several ways in.

The standard European high yield form is narrower. Of the European high yield offering memoranda from 2020 to 2026 that I've reviewed, most either add back "the financial impacts of natural disasters (including fire, flood and storm and related events)" and stop there, or don't name disasters or pandemics at all. A handful have a pandemic list. 888 in 2022 and Constellation Automotive in 2021 made it COVID-specific and capped it. Modulaire in 2021, Lottomatica and Multiversity in 2024, and now Intertek and InPost have the general, uncapped version. Lottomatica's clause is Intertek's without the words "lost or foregone revenue" and without the act of God, war, cyber attack, strikes and tariffs additions.

InPost's add-back works through a defined term, "Uncontrolled Event", and the definition doesn't describe the term as a list of events. It describes events "occurring during which any grace period or other timeframe for providing for the cure of any actual or alleged Default or Event of Default shall be extended or stayed". That is a clause that pauses the clock on curing a default while a disaster is running. The bond's events of default don't use the definition, so those words do nothing there. One clause of the definition is "any litigation to the extent relevant to such Default or Event of Default", which makes sense for extending a cure period and none for a disaster add-back. In an EBITDA calculation, either it does nothing or it lets in losses from any litigation the company treats in good faith as relevant to an actual or alleged default. The words support both readings.

The questions for your own book:

1. Does the disruption add-back cover lost revenue, or costs only?

2. Is there a cap, a time limit or a certificate?

3. Where a defined term is borrowed, does the bond use it anywhere else, and does every clause of it make sense in an EBITDA calculation?

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