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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