A Project Life Cover Ratio – or PLCR – is calculated for every project finance deal and typically needs to meet various covenants throughout the project life. But what is a PLCR, how is it calculated, and why do we even need it? Let’s take a deeper look at one of the least understood project finance ratios.
If we recall what an LLCR is used for, it is used to assess the robustness of a project to service its debt over the project life. Given that the DSCR may vary in every period, taking a periodic view of the capability to repay debt, especially in a period where the CFADS may be higher than normal, does not provide a holistic view of debt repayment capability. Therefore, the LLCR is used to have a look at the debt repayment ability over the loan life – one can think of it as an average DSCR.