Unused Debt Capacity
Short definition
Unused debt capacity is the gap between actual debt and the target or covenant cap in which stressed DSCR still holds. Not all undrawn lines are capacity.
Detailed explanation
Capacity is computed from CFADS, collateral, rates and tenor; an EBITDA multiple is a coarse cap. A stress year lowers the cap; a base year creates a “room available” illusion.
A committed, collateral-ready line is close to capacity; uncommitted, unsecured slack vanishes in stress. M&A and capex use this stock on purpose.
Why it matters for the CFO
Flexibility and the second pecking-order rung rest on this stock. Using it up forces equity in the next shock.
How to read it
Unused capacity = min(covenant headroom, collateral gap, stressed DSCR cap) minus a buffer. There is no universal slack.
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What to learn next
Definitions are educational. They are not investment, credit or tax advice.