Compare
| Signal Category | What to Watch | Lead Time |
|---|---|---|
| Financial ratios | Z-Score, interest coverage declining, leverage rising | 6–12 months |
| Market signals | CDS widening, bond prices falling, equity vol spike | 3–6 months |
| Operational signs | Customer losses, supplier payment delays, talent departure | 3–9 months |
| Legal/structural | Covenant amendments, revolver draws, auditor warnings | 1–6 months |
| Management behavior | C-suite departures, M&A pivot, aggressive accounting | Variable |
Key point
The most reliable distress predictor is the combination of declining EBITDA + rising leverage + CDS widening. When all three align, the company is on a deteriorating trajectory that rarely reverses without intervention.
Try it
Check a company’s interest coverage ratio trend in **Fundamentals**. If it’s declining quarter over quarter and approaching 1.5x, the company may be entering the distress zone.
Check-in
A company’s Z-Score is 2.5 (grey zone), CDS spreads doubled in 3 months, and the CFO just resigned. How many independent distress signals is this?
Key insight
Check-in
Altman Z < 1.8 says 'distress.' But you've also spotted: (1) rising DSO, (2) debt covenant tripping in 6 months, (3) auditor change, (4) CEO departure. What's the picture?
Check your understanding
Sit with the ideas.
A retailer has Debt/EBITDA of 5.8x (covenant limit: 6.0x), interest coverage of 1.4x, $40M cash, a fully drawn $200M revolver, and $350M in bonds maturing in 14 months. Its bonds trade at 78 cents. Which combination of signals is most alarming?
Why: