FREE
TUTORIAL
CFADS - CASHFLOW AVAILABLE
FOR DEBT SERVICE
CFADS Introduction
A projects Cashflow Available for Debt Service (CFADS or
CADS) is analysed by project lenders (senior debt banks) to
determine debt sizes and repayment criteria.
CFADS is calculated by netting out Revenue, Operating
Expenditure (OpEx), Capital Expenditure (CapEx), Debt & Equity
Funding, Tax and Working Capital Adjustments. The annual
Cashflow Waterfall below clearly demonstrates the calculations.
Period Start
Period End
Construction
Operations
1-Jan-09
31-Dec-09
1
1-Jan-10
1-Jan-11
1-Jan-12
31-Dec-10 31-Dec-11 31-Dec-12
1
1
1
Cashflow
Application of CFADS in Project Finance
analysis
CFADS is preferred to determine gearing and lending capacity as
opposed to EBITDA since this measure does not take taxes and
timing of cashflows into consideration.
EBITDA is a common metric in Corporate Finance but in Project
Finance the focus is on actual cashflow (CFADS).
This project illustrated below is repaying the funds borrowed to
finance the Capital Expenditure as an Annuity (Credit Foncier)
over a four year tenor. Principal and interest together sum up to
an equal amount every year, however more principal is repaid in
the later years since the interest component decreases in line
with the debt balance.
Revenue
Spot Sales
Interest Income
Total
CFADS vs Debt Service (AUD '000)
73,265
88,685
88,732
88,532
40,000
73,265
88,685
88,732
88,532
35,000
30,000
CFADS
Principal
Interest
OpEx
Variable OpEx
Fixed OpEx
Total
(24,968)
(1,500)
(26,468)
(27,958)
(1,500)
(29,458)
(35,158)
(1,500)
(36,658)
(35,584)
(1,500)
(37,084)
25,000
20,000
15,000
10,000
CapEx
Expansion CapEx
Exploration CapEx
Total
Cashflow before Funding
(8,000)
(4,500)
(12,500)
(8,000)
(4,500)
(12,500)
(3,000)
(2,500)
(5,500)
(3,000)
(2,500)
(5,500)
34,297
46,727
46,574
45,948
5,000
2007
2008
2009
2010
2011
2012
2013
Screenshot #2: Graph of CFADS vs Debt Service
Funding
Debt
Equity
Total
Corporate Income Tax
(6,859)
(9,345)
(9,315)
(9,190)
27,438
37,382
37,259
36,758
(4,406)
(16,056)
(20,462)
(3,403)
(17,060)
(20,462)
(2,337)
(18,126)
(20,462)
(1,204)
(19,259)
(20,462)
6,975
16,919
16,797
16,296
If you would like to learn more about debt metrics widely
used in project finance and other items relating to project
finance modelling, then you should attend the Project
Finance Modelling (A) course.
Working Capital Adjustments
CFADS
Debt Service
Interest
Principal
Total
Cash Available to Equity
Screenshot #1: Annual Cashflow Waterfall to determine CFADS
www.navigatorPF.com
Nick Crawley, Managing Director
Navigator Project Finance
Many projects experience a ramp-up period before they reach
steady state production and revenue, this can be clearly seen by
plotting CFADS vs Debt Service as illustrated in Screenshot #2.
Project lenders usually determine borrowing capacity on the basis
of debt service ratios. Most common debt ratios in project finance
are Debt Service Cover Ratio (DSCR) and Loan Life Cover Ratio
(LLCR) which both use CFADS in the numerator.
Debt Service Cover Ratio (DSCR)
The DSCR uses CFADS in the numerator and Debt Service
(Principal + Interest) in the denominator. A ratio of 1.00x would
thus mean that the project cashflows are equal to total debt
service in the period.
DSCR = CFADS / Scheduled Debt Service
Navigators courses are presented in the following cities
Sydney
Perth
London
New York
Frankfurt
Hong Kong
Singapore
Dubai
Scheduled Debt Service = Interests + Principal Repayment
Common Mistakes in CFADS Calculations
Loan Life Cover Ratio (LLCR)
Unlike period on period measures such as the DSCR, LLCR
measures how many times the Discounted CFADS over the
scheduled life of the loan can repay the outstanding debt balance.
LLCR = NPV (CFADS over Loan Life) / Debt Balance b/f
Project Finance Modelling (A)
Project Finance Modelling (B)
Debt Modelling Masterclass
VBA for Financiers
Period Start
Period End
Construction
Operations
1-Jan-09
31-Dec-09
1
Public Courses by Navigator Project Finance
1-Jan-10
1-Jan-11
1-Jan-12
31-Dec-10 31-Dec-11 31-Dec-12
1
1
1
Incorrect items are included in the calculation: Depreciation;
Cash Balances; Reserve Accounts etc.
When modelling Sub or Mezzanine debt, it is important to
include cashflow available at the appropriate level of
seniority;
CFADS calculations set up to back out CFADS from
EBITDA is a warning sign the modeller is inexperienced in
project finance modelling and should be checked carefully.
If you would like to know more about Project Finance
ratios including DSCR and LLCR, check-out our free
tutorials on these topics. If you have any feedback or
suggestions for future developments we would like to
hear from you!
The team at Navigator Project Finance
www.navigatorpf.com/training/tutorials
CFADS vs Debt Service
Year: Calendar
2009
2010
2011
2012
Interest
Principal
Total Debt Service
4,406
16,056
20,462
3,403
17,060
20,462
2,337
18,126
20,462
1,204
19,259
20,462
CFADS
Debt Service
DSCR
27,438
20,462
1.34 x
37,382
20,462
1.83 x
37,259
20,462
1.82 x
36,758
20,462
1.80 x
DSCR (x)
2.40 x
2.20 x
2.00 x
DSCR
1.80 x
1.60 x
1.40 x
1.20 x
1.00 x
0.80 x
0.60 x
2007
2008
2009
2010
2011
2012
2013
Screenshot #3: Example of DSCR calculation and Graph
About Navigator Project Finance
Founded in 2004, Navigator Project Finance Pty Ltd (Navigator) is the project finance modelling expert. Headquartered
in Sydney, Australia, Navigator is raising the global benchmark in financial modelling services to the project finance
sector. Navigator designs and constructs financial models for complex project financings, offers training courses
throughout the Middle East, Asia and Europe, and conducts independent model reviews of project finance transaction
models. Navigator delivers fast, flexible and rigorously-tested project finance services that provide unparalleled
transparency and ease of use.
Customers include market leaders such as Deutsche Bank, ANZ Investment Bank, Bovis Lend Lease, Oxiana, Mirvac
Property, Westpac and the Commonwealth Bank of Australia, together with leaders from the finance, mining, property,
utilities, banking, chemical and infrastructure sectors.
Navigator Project Finance Pty Ltd
P +61 2 9229 7400
E [email protected]
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