Document ID: chunk:federal_register_of_legislation:F2024L01074:body:0:p57
Version: federal_register_of_legislation:F2024L01074
Segment Type: other
Provision Reference: 
Character Range: 166460–171817

issue no additional debt.                                                                                         The covenant package is satisfactory for this type of project. The project may issue extremely limited additional debt.                                                 The covenant package is fair for this type of project. The project may issue limited additional debt.                                                          The covenant package is insufficient for this type of project. The project may issue unlimited additional debt.
Reserve funds (debt service, O&M, renewal and replacement, unforeseen events, etc)                                                                        There is a longer than average coverage period, all reserve funds are fully funded in cash or letters of credit from highly rated banks.                                                   There is an average coverage period and all reserve funds fully funded.                                                                                                 There is an average coverage period and all reserve funds fully funded.                                                                                        The coverage period is shorter than average and reserve funds are funded from operating cash flows.

 1.         Slotting criteria for income-producing real estate exposures
                                                                Strong                                                                                                                                                                                                                                                                                              Good                                                                                                                                                                                                                                                                                                         Satisfactory                                                                                                                                                                                                                                                                                             Weak
Financial Strength
Market conditions                                               The supply and demand for the project's type and location are currently in equilibrium. The number of competitive properties coming to market is equal or lower than forecasted demand.                                                                                                             The supply and demand for the project's type and location are currently in equilibrium. The number of competitive properties coming to market is roughly equal to forecasted demand.                                                                                                                         Market conditions are roughly in equilibrium. Competitive properties are coming on the market and others are in the planning stages. The project's design and capabilities may not be state of the art compared to new projects.                                                                         Market conditions are weak. It is uncertain when conditions will improve and return to equilibrium. The project is losing tenants at lease expiration. New lease terms are less favourable compared to those expiring.
Financial ratios and advance rate                               The property's DSCR is considered strong (DSCR is not relevant for the construction phase) and its loan-to-valuation ratio (LVR) is considered low given its property type. Where a secondary market exists, the transaction is underwritten to market standards.                                   The DSCR (not relevant for development real estate) and LVR are satisfactory. Where a secondary market exists, the transaction is underwritten to market standards.                                                                                                                                          The property's DSCR has deteriorated and its value has fallen, increasing its LVR.                                                                                                                                                                                                                       The property's DSCR has deteriorated significantly and its LVR is well above underwriting standards for new loans.
Stress analysis                                                 The property's resources, contingencies and liability structure allow it to meet its financial obligations during a period of severe financial stress (e.g. increase in interest rates, downturn in economic growth).                                                                               The property can meet its financial obligations under a sustained period of financial stress (e.g. increase in interest rates, downturn in economic growth). The property is likely to default only under severe economic conditions.                                                                        During an economic downturn, the property would suffer a decline in revenue that would