Debt-service coverage ratio


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Related to Debt-service coverage ratio: Fixed Charge Coverage Ratio

Debt-service coverage ratio

Earnings before interest and income taxes, divided by interest expense plus the quantity of principal repayments divided by one minus the tax rate.

Debt-Service Coverage Ratio

1. In investment real estate, the ratio of annual net operating income on a piece of investment property to its annual debt service. Banks use the DSCR to help determine whether to make or refinance loans for investment property. A DSCR equal to or greater than 1 indicates that the debtor is able to service the debt on the income from the investment property. In personal finance, banks usually require a DSCR of at least 1 to make such a loan, while they generally expect a ratio of 1.2 for commercial projects.

2. In government finance, the ratio of annual export earnings to its annual debt service on external debt.
References in periodicals archive ?
IN ALL CLASSES OF COMMERCIAL REAL ESTATE, the lower the debt-service coverage ratio (DSCR), the greater the risk of default, according to a report by Moody's Investors Service, New York.
The refinance loan was structured with a 35-year fully amortizing mortgage and underwritten with a 1.178x debt-service coverage ratio. Walker & Dunlop structured the refinance to enable the borrower, EP Holdings, LLC, to lock in a low 35-year fixed rate.
The loan was underwritten to a 70.38 percent loan-to-value with a 2.07x debt-service coverage ratio.
Wells Fargo Securities said debt-service coverage ratios improved modestly last year to 1.78x from 1.76x in 2014, "but the improvement came in a year that saw the average loan coupon decline 28 basis points," the report said.