Difference between DSCR, LLCR and PLCR

Difference between DSCR, LLCR and PLCR

DSCR (Debt service coverage ratio) measures the ability  to pay the debt in any particular year. A debt service ratio of 1.3 means that for a total debt and interest obligation of $ 100 the free cash flow available to service the same is $ 130. The higher ratio gives more comfort to the lenders and it becomes easier to obtain a loan. A DSCR of less than 1 would mean a negative cash flow. A DSCR of less than 1, say .95, would mean that there is only enough net operating income to cover 95% of annual debt payments. For example, in the context of personal finance, this would mean that the borrower would have to delve into his or her personal funds every month to keep the project afloat.

DSCR = [CFADS over Loan Life] / [Debt Balance b/f + Interest repayment]

DSCR = (Annual Net Income + Amortization/Depreciation + Interest Expense + other non-cash and discretionary items (such as non-contractual management bonuses)) / (Principal Repayment + Interest payments + Lease payments)

Loan life coverage ratio measures the ability of the borrower to repay an outstanding loan. The Loan Life Coverage Ratio (LLCR) is calculated by dividing the net present value (NPV) of the money available for debt repayment in the loan repayment period by the amount of senior debt owed by the company.

LLCR = NPV [CFADS over Loan Life] / Debt Balance b/f

The PLCR is similar to the LLCR – it is the ratio of the net present value (NPV) of the cash flow over the remaining full life of the project to the outstanding debt balance in the period.

LLCR = NPV [CFADS over Project Life] / Debt Balance b/f 

Mortgage, Hypothecation and Pledge

Mortgage, Hypothecation and Pledge- These terms are used for creating a charge on the assets which is given by the borrower to the lender as a security for any loan.

	Pledge	Hypothecation	Mortgage
Type of Security	Movable	Movable	Immovable
Possession of the security	Remains with lender (pledgee)	Remains with Borrower	Usually Remains with Borrower
Examples of Loan where used	Gold Loan, Advance against NSCs, Adv against goods (also given under hypothecation)	Car / Vehilce Loans, Adv against stock and debtors	Housing Loans

A letter of credit is a Bank direct undertaking to the supplier to pay. In contrast in Bank Guarantee, the bank pays only when the buyer is unable or unwilling to pay. In case of LC the liability solely rests on the bank so a LC is less risky for the merchant but more risky for the bank.

For detail please refer http://www.castleconsultants.in/pdf/LCAndBGComparisionCastle.pdf

A letter of credit can also be defined as an obligation given to a bank so that a criteria can be followed before payment is made. As soon as the terms from both parties have been confirmed and completed, it is now the bank’s role to transfer the funds.A letter of credit ensures payment for performed services

Just like a line of credit, a bank guarantee is being used to insure a sum of money to its beneficiary. It is actually a type of guarantee wherein a bank or another lending organization makes the promise to repay their debtor’s liabilities in the event that he is unable to do so.

Standby letter of credit

http://articles.economictimes.indiatimes.com/2014-02-11/news/47235798_1_indian-bank-india-bank-leading-private-bank

Tax liability

Calculation of net tax to be paid in project finance case

Calculation of corporate tax calculation (CTL)

Step 1. Calculate PBT (for income tax purpose) = PBT+ Book depreciation –Tax Depreciation

Step 2. CTL= if (mat year(80IA)=Y or PBT <0),0, PBT (for income tax purpose)*tax rate )  

Step 3. MAT liability= PBT (Book Dep)*MAT rate

Step 4. Tax liability without MAT credit=Max(MATL, CTL)

MAT Credit earned in this period= MAX(0, MATL-CTL)

Cumulative MAT Credit Available=

MAT Credit Utilized in this period=IF(CTL>MATL),(CTL-MATL),(0))

Step 5. Net tax paid= if (MATL>CTL, MATL, CTL-MAT Credit utilized in the period)

FM clears policy to defer premium payment by road developers - Angel Broking - EquityBulls.com

FM clears policy to defer premium payment by road developers - Angel Broking - EquityBulls.com

RBI framework for Revitalising Distressed Assets

RBI released its framework of Revitalising Distressed Assets on January 30, 2014. The Key points are

Firstly, banks must categorise borrowers not paying interest on loans for one month into an SMA 1 or special mention account 1. Loans with interest unpaid for two months must be put in SMA 2. And all loans of over Rs 500 million must be reported to RBI's central repository of information on large credits.

Once, one bank puts a loan in the SMA 2 box, all the lenders to that borrower should form a joint lender forum led by the bank with the largest exposure. The forum must first try to rectify the stress by asking promoters to put in money, sell off non-core assets or get another equity partner.

However, where the lenders forum finds out that rectifying won’t work, they may restructure the loan taking appropriate personal guarantees and collateral. If the forum finds that restructuring won’t work, it may resort to recovering what is left of the asset. The forum has only 30 days to arrive at its solution. For loans above Rs 5.00 billion, the forum must seek advice from an independent evaluation committee to ensure fair restructuring. Loans under restructuring will attract lower provisioning of 5 percent. But if lenders fail to resolve SMA 2 loans early, they have to provide more; 25 percent in the first year, instead of 15 percent currently.

Secondly, RBI allowed banks to refinance existing infrastructure project loans through take-out financing agreements with any financial institution. As per circular even if the revised repayment period is longer than the residual repayment period in the earlier bank's books, the account will not be considered restructured, as long as a proper due diligence has been done by the refinancing bank or institution. 

This framework will be fully effective from April 01, 2014

Average DSCR

How to calculate average DSCR(Debt Service coverage ratio)

There are two ways to calculate ADSCR

1.   Take average of each year DSCR (Cash flow available for Debt servicing(PAT+ Depreciation + Interest + Deferred Tax + Lease Rental income)/ (Interest payment in year + Principal repayment in the year)
2. Divide the total Cash flow available for Debt servicing over the life of the loan by sum  total Interest payment and Total Principal repayment)

The first method give equal importance to each period but second method treats each element by the relative importance of the sum of principal and interest

Both method with give same result if denominator is same for all year i.e. / (Interest payment in year + Principal repayment in the year) but result will be different in case of differential repayment

So it is all preferable to calculate ADSCR using second method as

1. It does not treats all period as equally important
2. It does not cover the distortions due to differential repayment
3. It is more accurate representation of average