{"id":30764,"date":"2025-01-29T14:23:47","date_gmt":"2025-01-29T19:23:47","guid":{"rendered":"https:\/\/breakingintowallstreet.com\/?post_type=biws_kb&p=30764"},"modified":"2025-04-02T18:55:56","modified_gmt":"2025-04-02T23:55:56","slug":"cash-flow-available-for-debt-service-cfads","status":"publish","type":"biws_kb","link":"https:\/\/breakingintowallstreet.com\/kb\/project-finance\/cash-flow-available-for-debt-service-cfads\/","title":{"rendered":"Cash Flow Available for Debt Service (CFADS) in Project Finance: The Lifeblood of Infrastructure Assets"},"content":{"rendered":"

Cash Flow Available for Debt Service (CFADS) Definition:<\/strong> In Infrastructure and Project Finance, the CFADS equals EBITDA \u2013 Cash Taxes +\/- Change in Working Capital \u2013 Maintenance CapEx. It represents the total amount of cash flow an asset could potentially use to pay interest on its Debt and repay Debt principal in the period, and it\u2019s used in the Debt sizing and sculpting and equity returns calculations.<\/p><\/blockquote>\n

Cash Flow Available for Debt Service (CFADS) is perhaps the single most important metric<\/strong> in Project Finance, and it will come up in virtually all models in the sector \u2013 even if you\u2019re analyzing more of a \u201cnormal company,\u201d such as a publicly traded airport.<\/p>\n

It is similar to Unlevered Free Cash Flow (UFCF)<\/a> for a normal company, but it is not the same<\/strong>, as shown below:<\/p>\n

\"Cash<\/p>\n

One key difference is that, unlike UFCF, CFADS also reflects the tax deduction for the interest paid on Debt, while UFCF ignores this and assumes no tax benefit.<\/p>\n

This means that CFADS can easily create circular references<\/strong> in models because the interest expense affects the taxes, the taxes affect the CFADS, and the CFADS affects the initial Debt balance.<\/p>\n

Also, UFCF typically deducts both<\/em> Growth and Maintenance CapEx (i.e., long-term capital spending required to grow the business and the long-term spending to maintain the business), but CFADS normally deducts only Maintenance CapEx<\/em>.<\/p>\n

This is because in Project Finance, major new additions and upgrades \u2013 such as an additional airport terminal \u2013 are typically funded with additional Debt and Equity, so they do not depend on the existing CFADS.<\/p>\n

The Debt sizing and sculpting<\/a> common in Project Finance are always linked to the future CFADS of the asset because revenue and expenses tend to be more predictable in this sector.<\/p>\n

When calculating the returns to the equity investors, the Cash Flow to Equity is based on CFADS \u2013 Interest Expense \u2013 Debt Principal Repayments, so it is also very important there.<\/p>\n

Files & Resources:<\/strong><\/h3>\n