Example The City of San Rafael’s water revenue bond debt statement carries the following revenues and payments. Determine the debt service coverage under a net revenues pledge.
- Revenues $15 million
- Interest $2 million
- Principal payments $1 million
- Operating expenses $9 million
The debt service coverage ratio of this net revenues pledge facility is determined by subtracting the operating expenses from the revenues, or
$15 million minus $9 million, which equals $6 million. Then by dividing this $6 million by the debt service of $3 million (the principal and interest
), we arrive at a 2-to-1 debt service coverage ratio, which is a good ratio.
If the facility had a GROSS REVENUES PLEDGE, the total $15 million in gross revenues would have been available for the debt service. This results in a 5-to-1 ratio, which is a superb ratio.