What is DSCR in project finance?
The debt-service coverage ratio (DSCR) is a measure of the cash flow available to pay current debt obligations. DSCR is used to analyze firms, projects, or individual borrowers. The minimum DSCR that a lender demands depends on macroeconomic conditions.
How is DSCR calculated?
Debt service coverage ratio measures a business’s cash flow versus its debt obligations. DSCR can help businesses understand whether they have enough net operating income to pay back loans. To calculate DSCR, divide net operating income by debt service, including principal and interest.
How is DSCR calculated in project report?
DSCR is calculated as CFADS divided by debt service, where debt service is the principal and interest payments due to project lenders. For example, if a project generates $10 million in CFADS and debt service for the same period is $8 million, the DSCR is $10 million / $8 million = 1.25x.
What is standard DSCR ratio?
In general, a good debt service coverage ratio is 1.25. Anything higher is an optimal DSCR. Lenders want to see that you can easily pay your debts while still generating enough income to cover any cash flow fluctuations. However, each lender has their own required debt service coverage ratio.
What is DSR amount?
DSR Amount means the amount equivalent to one month’s Interest payment to be maintained by the Company in the DSRA throughout the term of this Agreement; Sample 2.
What is the DSCR used for in project finance?
The DSCR is used for two main purposes in project finance: Sculpting & Debt sizing and Covenant testing. 1. Sculpting and Debt sizing This is used prior to financial close, in order to determine the debt size, and the principal repayment schedule.
What is the DSCR formula?
What is the DSCR Formula? DSCR (Debt service coverage ratio) formula provides an intuitive understanding of the debt repayment capacity of the company and is calculated as the ratio of Net Operating Income to Total Debt Service. DSCR Formula = Net Operating Income / Total Debt service
What does a DSCR of less than 1 mean?
A DSCR of less than 1 means negative cash flow, which means that the borrower will be unable to cover or pay current debt obligations without drawing on outside sources— in essence, borrowing more. For example, a DSCR of .95 means that there is only sufficient net operating income to cover 95% of annual debt payments.