Computing the DSCR for a project finance loan with BlueGamma

What is the Debt Service Coverage Ratio (DSCR)?

Debt service coverage ratio (DSCR) is the key measure of a project’s ability to meet its debt obligations from its own cash flow. Lenders in wind, solar and battery projects rely on DSCR to size loans, sculpt repayments and monitor project health throughout loan life.

Why is DSCR used in project finance

• Loan sizing & structuring: A minimum DSCR (often 1.30×) is set in the term sheet to ensure sufficient cash headroom
• Debt sculpting: Principal repayments are aligned to cash‑flow profiles so that high‑and low‑revenue periods both meet coverage targets
• Ongoing covenant: DSCR is tracked regularly - sometimes on a 12‑month look‑back or look‑forward basis - to flag shortfalls early.

Most facilities rely on historic DSCR as the covenant measure rather than a forward‑looking ratio.

Example from a Facilities Agreement (CTFA)

Project assumptions for our worked example

• Loan life: 4.5 years (amortising)
• Initial loan amount: €70,801,200
• Interest: 6M EURIBOR + 1.50%

As such, DSCR is used initially at Term sheet phase for structuring but also during the life of the project as a covenant to ensure the project is able to maintain healthy cash flow.

Step 1: Calculate CFADS

In project finance, we use CFADS instead of accounting measures like NOI, because cash is what repays debt:

• Revenue (e.g. electricity sales)
• – Operating Expenditure (Opex)
• – Capital Expenditure (Capex)
• – Tax
• – Working Capital changes

Example: Flat CFADS of €10 million every six months.

Step 2: Forecast Scheduled Debt Service with BlueGamma

Use the BlueGamma Add‑In to pull forward rates for your amortisation schedule:

=BLUEGAMMA.FORWARD_RATE(...)

This gives the interest cost for each period. Combine with principal repayments (and fees if any) to total scheduled debt service.

In simple terms, DSCR shows how many times CFADS covers Scheduled Debt Service.

Debt Service Definition Example from a Facilities Agreement (CTFA)

Once Financial Close has been reached on the project

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Step 3: Apply the DSCR formula

To compute DSCR, use:

DSCR = CFADS ÷ Scheduled Debt Service

Calculate this ratio for each period:

Here the minimum DSCR of 1.30× in July 2030 meets a typical covenant requirement.

Step 3: Compute DSCR Over Loan Life

Apply the DSCR formula period by period.

Let’s also look at an example definition from a Facilities Agreement

Example:

With an example in Excel below

In this case, the minimum DSCR is 1.30× in the final period, matching a typical covenant requirement.

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For a video run through of calculating the DSCR here’s a run through.