The disclosed ranges are modest. As of October 2026, Lifco targets interest-bearing net debt of 2 to 3 times EBITDA and reported 1.1x for 2025. Judges Scientific reported gearing slightly below 1.5x EBITDA, against bank covenants of 3.0x gearing and 3.0x interest cover. Addtech reported net debt excluding pensions at 0.7x equity. Berkshire says it uses debt sparingly and prudently. No filing sets a universal safe level. As a rule of thumb, set your debt so that earnings can fall by half and you still pass every covenant, because the covenant, not the average multiple, is what forces a sale.
The Lifco and Judges figures show how a stated ceiling and the actual level can differ. Both ran well under their ceilings in 2025.
Constellation separates debt with recourse to the parent from debt without it. At 30 June 2026 its CSI credit facility had a $1,085M limit, was unsecured, and had nothing drawn. It also reported $1,000M of senior notes with recourse to the parent (5.158% due 2029 and 5.461% due 2034), a $500M promissory note at 7% due 2063 without recourse, and $2,120M of principal under other debt facilities without recourse. Total debt was $4,196M against $2,886M of cash (Q2 2026 MD&A).
The older letters give the philosophy. The 2015 letter describes its debt load as increasing but still moderate, and says it wants to avoid short-term debt financing long-term assets (2015 letter). Matching debt term to asset life is a rule I would copy.
Assumptions. EBITDA is $3.0M and the covenant caps net debt at 3.0x EBITDA, the level Judges discloses. Interest is 8% of debt. Compare two starting positions.
Both companies look sound in a normal year. Only the first survives a bad one. In a small group, losing one customer or one owner could remove that much. My view is that a small public holding company should run well below any covenant until it has several businesses and a record of cash conversion.
For a lender's view, see how to calculate DSCR for an acquisition. For funding without more bank debt, see funding acquisitions without more SBA debt. Stock can replace debt; see whether to issue shares.
Where these numbers come from: Lifco is from its Annual and Sustainability Report 2025. Judges is from its FY2025 results. Addtech is from its key financial indicators. Constellation is from its Q2 2026 MD&A and 2015 letter. Berkshire is from its Owner's Manual and 2025 letter. The cushion figures are the site's arithmetic on stated assumptions.
It is the gearing covenant Judges discloses, but a covenant is a limit, not a target. Lifco and Judges both ran far below theirs in 2025.
Usually not. Lenders look at size, history and cash conversion. Disclosed groups with long records can borrow at fixed rates for years; a new holding company has to earn that.
It removes the covenant risk and adds dilution. Which is cheaper depends on your share price; see when your stock is cheap currency.
Debt and deal size limit each other, so check the size side too: How big each acquisition should be.
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