Live case: Ashvel Paper needs Rs 900 crore for a mill expansion. EBITDA is Rs 260 crore today and should reach Rs 400 crore in year 3. Propose the tranches, moratorium, repayment profile and covenants, with debt service cover of at least 1.3x in every year.

Split the Rs 900 crore into a Rs 750 crore term loan for the plant and a Rs 150 crore working capital line, with a two-year interest-only moratorium and a term loan repaid over five years on a sculpted schedule. Sculpting sets each year's payment at cash divided by 1.40, so cover holds at 1.40x in years 3 to 6 and the loan clears in year 7. Equal instalments would breach 1.3x at 1.12x in year 3.

Match each rupee of debt to the asset it pays for. A household buys a house with a 20-year loan and pays for groceries from the monthly salary, never the other way round. The plant lasts decades and should be funded by a term loan repaid from years of profit; the stock and receivables turn over every few months and should sit on a working capital lineA revolving facility secured on stock and receivables, drawn and repaid as they rise and fall, usually renewed every year. secured on them. So the proposal is a Rs 750 crore term loan, 75% of plant cost with Rs 250 crore of promoter equity beside it, and a Rs 150 crore working capital line drawn when the new line starts.

Nothing new is earned while the line is being built, so principal before year 3 would come out of the old mill's cash and squeeze it. A two-year moratoriumA period at the start of a loan when only interest is paid and no principal is due, usually while the funded asset is being built. on principal, with interest paid from the existing Rs 195 crore of cash, keeps cover at 5.8x and 2.9x during construction. From year 3 the obvious schedule is equal instalments, but equal principal loads the heaviest payment into the first year, when interest on the full balance is also highest. The fix is to sculpt: set total debt service each year to cash divided by a target cover of 1.40x, and let principal be whatever is left after interest. As interest falls, principal rises.

Run it and see. Rs 187.5 crore of principal a year plus interest on Rs 750 crore plus the working capital interest is Rs 268.5 crore in year 3, against Rs 300 crore of cash. Equal instalments breach the 1.3x floor in each of the first three repayment years, at 1.12x, 1.19x and 1.28x, even though the total borrowed is identical. The loan is not too big; it is the wrong shape. One extra year of tenor and a rising principal profile fix it without asking the promoters for another rupee.

The whole structure leans on year 3 EBITDA of Rs 400 crore, so the covenants should watch that assumption. Set minimum cover at 1.3x tested yearly from year 3, net debt to EBITDA no higher than 3.0x from year 3, and a debt service reserve accountCash set aside, usually six months of debt service, that the lender can draw if a payment would otherwise be missed. holding six months of debt service, about Rs 107 crore, funded before the first repayment. Add a cash sweep of half of any cash above the 1.40x level while leverage is above 2.5x, and take a first charge on the new line with a second charge on the old mill. If the ramp slips a year, the reserve account pays one half-year instalment while the bank and Ashvel reset the schedule.

Present it the way the case wants: two facilities, a two-year moratorium, a five-year sculpted amortisation, four covenants, and one slide showing cover in every year. The strongest line in the deck is the one showing that the schedule was built from the cash profile rather than chosen first and tested later.