medium · Private Equity & LBOs
A portfolio company's debt agreement includes a 1.25x Debt Service Coverage Ratio (DSCR) covenant.
If the company has $40M in debt service (interest + principal) and $55M in CFADS, is it in compliance?
- Yes, the ratio is 1.375x.
- No, because 55M is not 1.25x greater than40M.
- No, the ratio is 0.73x.
- Yes, but it has zero headroom.
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