Advanced Project Finance Structuring
Size debt service to a covenant
The project can make its payment. Can it still break a covenant?
A coverage covenant requires cash available to exceed scheduled debt service by a stated factor. Work backward from the covenant to size the maximum payment.
Debt service ceiling = cash available for debt service ÷ target DSCR
Scheduled principal and interest together can be at most ₹108 crore ÷ 1.20 = ₹90 crore for the period. This is a service ceiling, not a debt balance.
At ₹108 crore available cash and a 1.20× minimum coverage ratio, the payment ceiling is ₹90 crore. A proposed payment of ₹100 crore needs a ₹10 crore reduction in that period.
Scheduled principal and interest together can be at most ₹108 crore ÷ 1.20 = ₹90 crore for the period. This is a service ceiling, not a debt balance.
If cash available falls to ₹96 crore while target coverage remains 1.20×, what payment fits?