* The median debt coverage ratio
for LIHTC properties has been between 1.13 and 1.15 for several years.
Testing the capitalization rate by considering such items as the implied debt coverage ratio
, equity dividend rate, and equity yield rate should be part of the direct capitalization analysis.
The debt coverage ratio
can be viewed as a payback period; that is, it estimates how many years, at the current level of cash from operations, it will take to retire all debt.
An improvement in the operating balance towards 10% of operating revenue, coupled with a debt coverage ratio
(direct risk-to-current balance) at around 10 years (2017: 180 years) for a sustained period, could lead to an upgrade.
As a result of this, we foresee Samalaju incurring further debt (in absence of shareholder support), with the projected gearing ratio to peak at a high 2.95 times over the next 5 years and its funds from operations debt coverage ratio
averaging at a weak 0.06 times, as compared to the Company's projection of 1.30 times and 0.17 times, respectively.
In early 2007, CMBS spreads for a standard 80% LTV with a 1.15x's debt coverage ratio
may have attracted say 90-110 bps over the ten year Treasury Yield, equaling a 10-year fixed rate of 5.5% (as of 2/07).
Commonly referred to as the "underwriter's method" of developing an overall rate and used by lenders with their own requirements for debt coverage ratio
(DCR), mortgage or loan-to-value ratio (M), and mortgage constant ([R.sub.M]), it is a good tool when it is market derived.
Its operating cashflow debt coverage ratio
is expected to hover around 0.06 times upon commencement of the lease and throughout the tenure of the IMTN.
Let's start with DCR, the Debt Coverage Ratio
. This applies to the property under consideration.
One of those ratios, the debt coverage ratio
(total annual debt service/cash from operations) speaks directly to the risk associated with the financial risk of that project.