When Your EBITDA needs a tariff-proof vest

The recent tariff drama taught us capital markets something: time to make “EBITDA” → “EBITDAT”, or risk a breach.

“EBITDA” definitions in credit terms are incredibly important. Add-backs are highly negotiated, hard fought, and, in many cases, the difference between a go/no go on a leveraged finance deal. There’s a pretty good reason for this: large swings in EBITDA are the primary driver of defaults—making it incredibly important to properly insulate credit term EBITDA from any wider, non-operationally driven swings.

So now, here’s my question: why shouldn’t borrowers get to add back tariffs?

In a world where borrowers’ COGS can increase 100%+ overnight due to non-operational factors like tariffs, which may be ephemeral, uncertain and unpredictably large—borrowers and lenders alike should want to insulate core debt terms from those swings. As a matter of policy, lenders already functionally agree to all types of tax add-backs (excise, franchise, income, capital gains, etc.) under the theory that policy matters should not affect cash flow health assessments in credit terms—tariffs are no different.

’s analytics illustrate one borrower got the memo. In 2018, in response to the first wave of tariffs, Motorcar Parts of America, Inc. included “amounts in connection with tariff costs incurred in excess of price increases” as an add-back to EBITDA in their credit deal, up to a $5M cap. This add-back is present in <1% of credit terms today.

Borrowers, do yourself a favor: pay 10 bps to your lender group for an amendment to add-back “tariffs” under your existing debt; otherwise, your CFOs will be on edge the next 3.5 years.