LLCR = NPV (CFADS over Loan Life) / Debt Balance brought forward Screenshot #3: Example of DSCR calculation Common mistakes in CFADS calculations Unlike period on period measures such as the DSCR, LLCR measures how many times the Discounted CFADS over the scheduled life of the loan can repay the outstanding debt balance. Scheduled Debt Service = Interests + Principal Repayment Loan Life Cover Ratio (LLCR) A ratio of greater than 1.00x means that there is sufficient cashflow to meet principal and interest payments. A ratio of 1.00x means that the CFADS in a period is equal to the total debt service in that same period. The DSCR uses CFADS in the numerator and Debt Service (calculated as Principal + Interest) is in the denominator. Most common debt ratios in project finance are Debt Service Cover Ratio (DSCR) and Loan Life Cover Ratio (LLCR) which both use CFADS in the numerator of the calculation. Project lenders usually determine borrowing capacity on the basis of debt service ratios. CFADS is increasing over time while debt service is decreasing over time. Many projects experience a ramp-up period before they reach steady state production and revenue, In this example in Screenshot #2, CFADS is plotted against Debt Service as. Screenshot #2: Graph of CFADS vs Debt Service EBITDA is a common metric in Corporate Finance but in Project Finance the focus is on actual cashflow (CFADS). Screenshot #1: Annual Cashflow Waterfall to determine CFADSĪpplication of CFADS in Project Finance analysisĬFADS is preferred over EBITDA in determining gearing and lending capacity because this measure does not take taxes and timing of cashflows into consideration. The annual cashflow waterfall below clearly demonstrates the calculations of CFADS. In a typical project finance model, the Cashflow Available for Debt Service is calculated by netting out Revenue, Operating Expenditure, Capital Expenditure, Tax and Working Capital Adjustments. CFADS is an important meansure that determines debt repayment calculations and ratios including Debt Service Coverage Ratio (DSCR), Loan Life Coverage Ratio (LLCR) and Project Life Coverage Ratio (PLCR). A project’s Cashflow Available for Debt Service (CFADS or CADS) is analysed by project lenders (senior debt banks) to determine debt sizes and repayment criteria.
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