Debt Sustainability
Short definition
Debt sustainability is whether debt can be carried without exploding, given rates, growth, primary cash surplus and tenor. A green single-period DSCR is not sustainability; it is a path.
Detailed explanation
A simple dynamic: the change in net debt ≈ interest − primary cash surplus (FCF-like) − inflation/FX effects. If interest exceeds the surplus, the stock grows. High real rates and low growth deteriorate ratios on their own.
Sustainability is tested under stress (sales, margin, rates, FX, the wall). There is no single “sustainable leverage” number; cash-flow stability and whether the refinancing window is open set it.
Why it matters for the CFO
Dividends and investment at unsustainable leverage are a transfer from equity. Banks and ratings read this path forward, not last LTM multiple.
How to read it
DSCR > 1 and leverage falling is a sustainability candidate. DSCR > 1 with a wall and negative FCF is cosmetic sustainability.
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What to learn next
Definitions are educational. They are not investment, credit or tax advice.