Vector Finance


The Debt Service Cover Ratio (DSCR) is one of two primary ratios that are heavily relied upon for the structuring and monitoring of Project Finance transactions. The DSCR invariably lies at the heart of a project finance financial model and whilst mathematically simple it is a significant source of error. This post guides you through the essential methods, considerations and tips and tricks to have more confidence in your DSCR calculations and ultimately the output of your financial model. It is accompanied by a downloadable workbook which starting from CFADS demonstrates how we calculate the DSCR and its common variants.


A Debt Service Reserve Account (DSRA) is a common structuring tool for project financings. It provides a cash buffer specifically to protect scheduled debt service in the event of unexpectedly low Cashflow. The rules governing its use are straightforward to explain but like much of project finance financial modelling, the devil is in the detail. The DSRA is an area of project finance modelling responsible for many late nights, circular references, messy formula and unexpected scenario output. This article gives you comprehensive insight into how Nick develops and tests a professional standard DSRA.


The Loan Life Cover Ratio (LLCR) with the Debt Service Cover Ratio (DSCR) form the two ratios that a project finance financial model will need to produce to assist in structuring and monitoring a project finance transaction. this post covers what it means, how to calculate it, how to test it and forms an essential grounding for more advanced analysis and industry specific variations involving the LLCR. Think of this as LLCR 101.


The Project Life Cover Ratio (PLCR) is part of the holy trinity of project finance ratios. The PLCR is a measure which takes into account cashflows beyond the life of the loan. Especially useful in the acquisition of late life natural resource assets where lenders and owners are more exposed to negative cashflows such as decommissioning costs. This post does not introduce the basic theory of a discounted cashflow to debt ratio, so work through the LLCR first if you are new to project finance ratios.

Project return

Project Finance lenders rely on the holy trinity of DSCR, LLCR and PLCR; however, developers and investors focus much more on the Project Return and Equity Return respectively. The Project Return allows Boards and Investment Committees the ability to compare one project to another, independent of gearing, cost of funds, impact on tax of deductible interest charges etc. This post introduces you to the Project Return, how to calculate it, how to present it and what to watch out for.

Terminal Value

In this article we take the perspective of an equity investor in a project finance transaction needing to incorporate a terminal value in a financial model. In particular we cover the often overlooked and important difference between a Perpetuity and a Growth-Annuity as well as other common errors to avoid and watch out for.

Transparent formula

This post is a primer on how to construct transparent formula, without oversimplifying the underlying logic and in doing so build more concise financial models which are readily checked, understood and communicated. The approach, part of the Alpha Spreadsheet Engineering methodology, relies on simple rules of Syntax, hierarchy and range names.