Disclaimer: Education only. Covenant levels quoted are illustrative unless a source is given; actual levels are in each loan agreement. Figures are as of the date shown at the end of the page.

In simple words (if you are in class 10)

If your father earns ₹50,000 a month and the home-loan EMI is ₹25,000, the bank feels safe: he earns 2 times what he must pay. That "2 times" is what bankers call DSCR (Debt Service Coverage Ratio).

Toll roads borrow too, and banks watch the same ratio every year: cash available ÷ loan payment due.

Banks also make the road company keep piggy banks:

  • one with about 6 months of EMIs in case toll collection drops (DSRA), and
  • one saving up for the big road-resurfacing bill every few years (MMRA).

And they decide who gets paid first from the toll money, like a queue: taxes and running costs, then the bank, then the piggy banks, and only then the owners. That queue is the waterfall.

The professional view

Toll or annuity receiptsall revenue into the escrow accountTaxes and statutory duesO&M and operating costsSenior debt serviceinterest and principalReserves: DSRA and MMRAtop-ups to required levelsCovenant testDSCR above lock-up?Distributions to equity or the InvIT
The escrow cash waterfallIllustrative order; the concession and loan agreements set the exact priority.

1. Core ratios

Ratio Formula What it tells you
DSCR CFADS for the period ÷ (interest + scheduled principal) for the period Can this year's cash pay this year's debt?
Minimum / average DSCR Over the loan life Lender sizing tests
LLCR PV of CFADS over remaining loan life ÷ debt outstanding Can the remaining loan be repaid over its life?
PLCR PV of CFADS over remaining concession ÷ debt outstanding Uses the "tail" after the loan
ICR / ISCR EBITDA or CFADS ÷ interest Interest-only cushion
Net debt / EBITDA Common at InvIT level
Net borrowings / asset value SEBI leverage test (25% / 49% / 70%)

CFADS (cash flow available for debt service) = revenue − O&M − major maintenance not funded from reserves − taxes ± working capital ± reserve movements.

2. Example: DSCR and sculpting (hypothetical)

Year CFADS (₹ cr) Target DSCR Sculpted debt service (CFADS ÷ 1.30)
1 90 1.30x 69.2
2 95 1.30x 73.1
3 100 1.30x 76.9

Debt sculpting sets each period's repayment so DSCR stays at the target. The maximum loan is the PV of sculpted debt service at the loan interest rate. For traffic-risk toll roads lenders want a higher DSCR cushion than for HAM/annuity roads; CARE notes lower gearing helps toll roads, while annuity assets with strong counterparties tolerate higher gearing (CARE InvIT methodology).

3. Reserves

  • DSRA (Debt Service Reserve Account): commonly sized at the next one or two quarters (or six months) of debt service, funded upfront or from cash flow; can sometimes be replaced by a bank guarantee. Sizing is set in each loan agreement. Rating agencies see a DSRA, especially before COD on HAM projects, as credit positive (CARE HAM methodology).
  • MMRA (Major Maintenance Reserve Account): builds up ahead of each periodic overlay so that MM does not break DSCR in the MM year.
  • SEBI angle: the December 2023 NDCF framework excludes restricted cash from NDCF, so cash locked in DSRA/MMRA is not distributable (Taxmann).

4. The escrow waterfall

NHAI model concession agreements require an escrow account with a defined order of withdrawals. A typical order is: taxes and statutory dues → construction/O&M expenses → concession fee or premium to NHAI (where applicable) → senior debt service → reserves (DSRA, MMRA) → subordinated debt → distributions to equity. This order is illustrative; the escrow agreement under the applicable MCA version sets the actual one. Lenders layer cash-trap or lock-up tests on top, for example "no distributions if DSCR falls below 1.10x" (illustrative).

InvIT tension: SEBI requires 90% of NDCF to be distributed, but lender cash traps can block cash at the SPV. Because restricted cash is excluded from NDCF, the two rules are compatible on paper, but the result is lower distributions. Investors should read the SPV-level covenant summary in the offer document.

5. Typical covenant package (illustrative)

  • Minimum DSCR (historic and projected), tested semi-annually
  • Maximum net debt / EBITDA or debt / asset value at InvIT level
  • Maintaining the credit rating (e.g. AAA required to stay above 49% SEBI leverage)
  • Restricted payments and cash-trap tests
  • Change-of-control: sponsor or manager change needs lender consent
  • Negative pledge, limits on additional debt, permitted investments
  • Information covenants: quarterly MIS, traffic reports, independent engineer reports
  • Cross-default across SPVs in a pooled financing

6. InvIT-level debt: why it differs

InvITs often refinance multiple SPV loans with one pooled loan or listed NCDs at InvIT level, secured by pledges and SPV-level guarantees. Benefits: lower cost from diversification and a AAA rating. Risks: structural subordination (SPV creditors, NHAI and tax authorities rank ahead at SPV level), and refinancing risk if bullet maturities sit near the end of concessions. The 2019 SEBI amendments added disclosure of asset cover, debt-equity, DSCR, ISCR and net worth for InvITs with leverage above 49% (Khaitan & Co).

7. Refinancing the "tail"

The tail is the period between final loan maturity and concession end. A longer tail gives lenders comfort (PLCR > LLCR). Refinancing after COD typically lowers interest cost and extends tenor, freeing cash for distributions, which is a key value lever for InvITs. SEBI's 2026 proposals to allow refinancing of original development debt above 49% leverage (principal only) address this (Vinod Kothari).

8. What a credit committee asks

  1. Is the base case traffic below the independent traffic consultant's case?
  2. What is the DSCR in a downside (traffic −10% for 3 years; WPI 0%; MM cost +20%)?
  3. How long is the tail, and does it give enough room to restructure if traffic disappoints?
  4. Are DSRA and MMRA fully funded today?
  5. How exposed are we to bank-rate resets (HAM) or floating rates (toll loans)?
  6. What does the termination payment cover if the concession ends early?

Track all of this in the DSCR, DSRA and MMRA covenant tracker.

Sources

  • CARE Ratings InvIT and HAM methodologies: linked above
  • Taxmann on SEBI NDCF framework: linked above
  • Khaitan & Co on 2019 InvIT amendments: linked above
  • Vinod Kothari on Feb 2026 SEBI consultation: linked above

Previous: Part 8 · Next: Part 10: Due diligence on a toll road acquisition

Education only. This page is not investment, tax, legal or accounting advice, and it does not recommend buying, selling or holding any security. Laws and rules change: check the linked primary source and consult a qualified professional before acting.

Last reviewed 25 October 2026. Spotted an error? Tell us and we will correct it.