Balance Sheet Capacity - Multi-Period Cover Ratios

Ratio 57. LLCR (30 reducing) (Times)

Loan Life Cover Ratio based on a reducing 30 year cash flow forecast.
The net present value of future cash flows over the 30-year forecast period divided by net debt. For future years the forecast period reduces progressively from 30 years at year zero, eventually to zero at year 30. More appropriate to a project with a finite life of 30 years than to a continuing business.
At a ratio of 1.0 the outstanding debt can be repaid from the cash flows over the remainder of the original 30-year forecast period. If less than 1.0 the debt cannot be fully repaid from forecast cash flows.

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Ratio 58. LLCR (30 constant) (Times)

Loan Life Cover Ratio based on a constant 30 years' cash flow projections.
The net present value of the future cash flows over the next 30 years divided by net debt. When calculated for future years the forecast period always includes 30 years' cash flows which, beyond the initial forecast period, are assumed to grow with inflation. This is the reciprocal of Ratio 54.

At a ratio of 1.0 outstanding debt can be repaid from the next 30 years' cash flows. This might be regarded as the maximum value with little cover for the risks and uncertainties that will affect the forecast. A ratio of about 0.66 implies that interest could be serviced but all maturing debt would have to be refinanced.

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Ratio 59. HALCR (Times)

Housing Association Life Cover Ratio. The net present value of cash flows in perpetuity divided by net debt. This is the reciprocal of Ratio 55.
At a value of 1.0 all forecast and extrapolated cash flows in perpetuity have been fully mortgaged ie the interest can be serviced but the debt never repaid. A prudent level of cover for risks and uncertainties affecting the forecast might be 1.25. Below 1.0 means that interest is not fully covered without value-adding developments after year 30. Ideally the ratio should recover to 1.0 or better by year 30.

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