Dhalai Castings wants a Rs 200 crore, 7-year term loan at 10% for a new plant, with projected DSCR of 1.15x. Would you lend, and on what conditions?

Not as asked, but yes on a restructured loan. The 1.15x assumes full output from day one; on a realistic ramp DSCR is 1.02x in year 1 and 1.15x in year 2, below the 1.25x comfort line. Lending Rs 150 crore over 10 years, with promoters funding Rs 50 crore of the capex, lifts the minimum DSCR to 1.26x and security cover from 1.3x to 1.7x. Add a reserve, a first charge on the plant and a DSCR covenant.

Whether the cash pays the instalments, year by year. The DSCRDebt service coverage ratio: cash available for debt service divided by the interest and principal due in the same period. compares cash available for debt service with interest plus principal on all the debt, old and new. A family taking a second loan is judged on whether one salary covers both EMIs, not just the new one. Here cash available is EBITDA less tax, and debt service includes the existing Rs 25 crore of principal and 9% interest as well as the new loan.

No. Year 1 debt service is Rs 22.5 crore of old interest, Rs 25 crore of old principal, Rs 20 crore of new interest and Rs 28.6 crore of new principal: Rs 96.1 crore. Management's Rs 110 crore of cash gives 1.145x, the 1.15x in the projection. A new plant rarely runs at full output in month one; at Rs 108 crore and Rs 115 crore of EBITDA in the first two years, DSCR is 1.02x and 1.15x. The ratio crosses 1.25x only in year 3, as both loans shrink.

Test each one, because they behave differently. A one-year moratoriumA period at the start of a loan when principal is not repaid, usually while a project is being built or ramped up; interest is still paid. on principal lifts year 1 to 1.45x but crowds the same Rs 200 crore into six instalments, so year 2 drops to 1.07x. A moratorium moves the problem a year; it does not shrink it. Stretching the tenor to 10 years alone gives a minimum of 1.12x. Rs 60 crore of promoter equity alone gives 1.20x. Combining the two levers, Rs 50 crore of equity and a 10-year loan of Rs 150 crore, gives a minimum of 1.26x, clear of the comfort line every year.

Lend Rs 150 crore over 10 years, conditional on Rs 50 crore of promoter equity going in first. Security cover rises from 260 over 200, 1.3x, to 260 over 150, 1.7x. Then add the conditions that protect the bank if the ramp-up is slower still: a first charge on the new plant, a debt service reserve of six months' instalments, a minimum DSCR covenant tested yearly, and drawdown against certified capex rather than upfront. Say the limit too: the case rests on the plant reaching Rs 120 crore of EBITDA, so ask for customer orders or offtake letters that back the Rs 30 crore uplift.