DSCR Covenant Clause Samples

DSCR Covenant. (a) For each Calculation Period, commencing on the first Calculation Date, the Debt Service Coverage as of each Calculation Date shall be not less than 1.30:1, to be evidenced by the income and expenses as reported within Borrower’s certified profit and loss statement for the applicable Calculation Period. (b) If the Debt Service Coverage Ratio as of any Calculation Date is less than 1.30:1, then Borrower, at its written election, shall do one of the following: (I) prepay a sufficient amount of principal outstanding on the Loan such that when such principal prepayments are applied to the then-outstanding Loan balance the Borrower would have satisfied the DSCR Covenant on the Calculation Date (such principal-reduction amount being the “DSCR Deficiency Amount”), such amount to be calculated by L▇▇▇▇▇ and conclusive absent manifest error; or (II) post a letter of credit or pay to Lender a sufficient amount which, when added to the Property’s then-current Net Operating Income, would have been sufficient to satisfy the DSC Covenant on such Calculation Date (the "NOI DSCR Shortfall Amount") and deposited with Lender pursuant to a pledge agreement by and between Borrower and Lender (the “DSCR Pledge Agreement”) in form and content satisfactory to Lender. The cash pledged under such DSCR Pledge Agreement shall constitute cash collateral securing the Loan with Lender agreeing to return such funds to Borrower only upon any future achievement of this DSCR Covenant equal to or in excess of 1.30:1 on a trailing 12-month basis as subject L▇▇▇▇▇’s right of setoff upon any Event of Default; (III) in lieu of prepaying Loan principal under (I) above or funding and pledging to Lender the NOI DSCR Shortfall Amount under (II) above, post a letter of credit or deposit with Lender into a DSCR Pledge Agreement, as pledged to Lender as cash collateral securing the Loan, an amount equal to the DSCR Deficiency Amount. The cash pledged under such DSCR Pledge Agreement shall constitute cash collateral securing the Loan with Lender agreeing to return such funds to Borrower only upon any future achievement of this DSCR Covenant equal to or in excess of 1.30:1 on a trailing 12-month basis as subject L▇▇▇▇▇’s right of setoff upon any Event of Default. Notwithstanding the foregoing, the Borrower may only elect to exercise its rights under (II) above only one time during the Term of the Loan. Borrower shall have 60 days from each Calculation Date to provide such Cure.

DSCR Covenant. Borrower fails to make the DSCR Covenant Cure Deposit or pay down the Loans within the time period set forth in Section 9.10 of this Agreement.

DSCR Covenant. At all times during the term of the Loan, Mortgagor shall maintain a minimum debt service coverage ratio (“DSCR”) of 1.25 to 1.00. Mortgagor shall certify compliance with a 1.25 to 1.00 In-Place DSCR commencing with the calendar year ending December 31, 2020 and annually as of December 31 of each year. “In-Place DSCR” means the ratio of (X) the trailing actual 12-month net operating income of the Property, to (Y) actual debt service, including interest and, if applicable, principal payable during the DSCR test period. Net Operating Income will be adjusted to include (i) a vacancy factor equal to the greater of (x) 3% or (y) the actual vacancy percentage; (ii) management fees equal to 2%; and (iii) rental payment for the month of January, 2020 to be included in the initial test. For future renewals or new leases, any free rent period will not be included in the initial DSCR testing period as long as the free rent period is not greater than six (6) months and the term of the lease is not less than five (5) years.

DSCR Covenant. Borrower fails to make any required prepayment of the Loan in a timely manner in accordance with the terms of Schedule 3 attached hereto.

DSCR Covenant. At all times during the term of the Loan, Mortgagor shall maintain a minimum debt service coverage ratio (“DSCR”) of 1.25 to 1.00. Mortgagor shall certify compliance with a 1.25 to 1.00 In-Place DSCR commencing with the date the Borrower acquired the Real Property through December 31, 2020 and annually as of December 31 of each year thereafter. “In-Place DSCR” following Closing means the ratio of (X) the trailing actual 12-month net operating income of the Property, to (Y) actual debt service, including interest and principal payable during the DSCR test period. Net Operating Income will be adjusted to include (i) a vacancy factor equal to the greater of (x) 3% or (y) the actual vacancy percentage; and (ii) management fees equal to 2% For future renewals or new leases, any free rent period will not be included in the initial DSCR testing period as long as the free rent period is not greater than six (6) months and the term of the lease is not less than five (5) years. Should the DSCR not be maintained for any testing period, Mortgagor shall have the option to pay down the Loan or provide a letter of credit in form and substance acceptable to Mortgagee, to achieve this requirement within ninety (90) days following Mortgagee’s determination that the minimum DSCR has not been maintained.