Debt Service Coverage Below Covenant
Leverage / base / 3 to 6 months
What it detects
The business does not generate enough net operating income to cover its annual debt service (scheduled principal plus interest) with the cushion a commercial lender requires. Debt service coverage is the ratio lenders write into loan covenants, and a reading below the covenant line is a technical breach: the lender can call the loan, freeze the facility, or reprice it, regardless of whether payments are current. This read is not evaluated on a partial-year P&L.
Why it matters
Debt service coverage is the exact ratio a lender writes into a loan covenant, so, if your loan carries a coverage covenant, a reading below its line is a technical breach even when every payment is current. That matters because the lender may then be entitled to call the loan, freeze the facility, or reprice it, turning a manageable situation into a sudden liquidity emergency on the lender's timetable rather than the company's. Watching this ratio gives an operator warning before a covenant trips, while there is still time to build coverage, talk to the lender, or restructure, instead of being surprised by a default notice.
Severity levels
- MEDIUM
- HIGH
Thresholds
- DSCR_COVENANT
Exact thresholds, formulas, and severity bands are omitted from this public view. The full methodology, with every figure, is available in the authenticated app.
When this signal does not apply
This signal needs the scheduled principal on long-term debt and a positive operating income to read a coverage ratio at all. When the books carry no current-portion-of-debt line, or show an operating loss, the read is reported as not applicable rather than approximated from interest alone.
How it connects
A DSCR below the [redacted]x line is a technical covenant breach: a lender can call the loan, freeze the facility, or reprice it. [redacted]
Sources
SEE IT ON REAL NUMBERS
The exact thresholds, the formula, and your own figures are in the authenticated app. See it against a real, simulated dataset for Integra Executive Services, our public demo company, or connect your own QuickBooks Online account.