The rating also factors in the amount equivalent to three months’ interest and principal in debt service reserve account (DSRA) and escrow mechanism along with the security cover of 1.09x available for the tenure of the issue.
The DSRA is a key component in almost every project finance term sheet and financial model.
The primary purpose of the DSRA is to protect a lender or investor against unexpected volatility, or interruption in the cash flow available to service the debt (CFADS).
The company has to ensure that all payments from identified projects come to designated escrow accounts and be utilised for payment of dues to NCD holders.
Any surplus amount after paying the dues of bond holders and maintenance of the required DSRA can be utilised by the company for business.
Flagging the risks faced by PFS, the rating agency said there is high concentration of the loan portfolio towards the power sector.
The sector is currently facing challenges on account of the poor financial health of discoms.
The long-gestation period of these projects may lead to delays and challenges related to availability of raw material. It could also impact the asset quality and profitability of PFS, Brickwork added.