Cash Available for Debt Service
Definition
Cash available for debt service (CFADS) is the cash a project generates in a period that is available to pay interest and principal, after operating costs, taxes, required capital spending and any payments that rank ahead of the lenders. It is not an accounting measure; the loan agreement defines it, and the definition decides what counts. CFADS is the numerator of the debt service coverage ratio that sizes the loan and tests whether equity can be paid.
Why it matters
Coverage ratios, debt sizing and distribution tests are all calculated on CFADS, so its definition decides how much a project can borrow and when equity is paid. Investors reading a project fund's or yieldco's materials should check whether projected cash to equity starts from EBITDA or from the defined CFADS, and what sits between them: tax equity, reserves, holding company costs and taxes.
Common misconceptions
- •CFADS is not EBITDA; reserves, taxes, capital spending and senior partners' cash come out first.
- •Each loan agreement defines CFADS differently; the same project can have different CFADS under two facilities.
- •Revenue received before term conversion or from testing is often excluded.
- •CFADS at the project is not cash at a holding company or fund; other debt and fees can sit in between.
Technical details
Worked example (illustrative): from EBITDA to CFADS
Project EBITDA: $20.0 million.
Less cash to the tax equity investor under the partnership agreement: $4.0 million.
Less taxes paid at the borrower: $0.5 million.
Less maintenance spending and the augmentation reserve deposit: $1.5 million.
CFADS: $14.0 million, 70% of EBITDA. With $10.0 million of debt service, coverage is 1.40x, not the 2.00x that EBITDA would suggest.
Questions to ask
Which document defines CFADS, and at which entity?
Are tax equity distributions, reserve deposits and major maintenance deducted?
Are one-off receipts, insurance or pre-completion revenue included?
How investors apply the term
Investors usually apply this term by tying the definition back to the controlling documents and then asking which cash flows, rights, restrictions, or valuation assumptions it changes. A useful review looks at the term alongside fees, leverage, liquidity, reporting frequency, and manager discretion rather than treating it as a standalone concept.
The practical diligence test is simple: identify who benefits if the assumption is wrong, who has control when conditions change, and what evidence the investor receives after closing. Terms that cannot be reconciled to documents, cash movements, and monitoring data should be treated as marketing shorthand until proven otherwise.
Frequently asked questions
- How is CFADS different from EBITDA?
- EBITDA is an earnings measure before interest, taxes, depreciation and amortization. CFADS starts from cash and deducts what EBITDA leaves in: taxes paid, maintenance and replacement spending, reserve deposits, working capital, and any cash that belongs to a partner ranking ahead of the borrower. A project can report rising EBITDA while CFADS falls because a reserve must be funded or a tax equity investor's share of cash rises.
- How does a real loan agreement define it?
- In the Pelican's Jaw financing agreement, filed as an exhibit to SB Energy's 2026 S-1, Operating Cash Flow Available for Debt Service is the sum of project revenues 'that are distributed to the Class B Member during such period in accordance with the Tax LLCA,' investment income on the collateral accounts, and certain reserve releases, less fees and O&M expenses payable at the borrower level. The lenders' cash is what the tax equity partnership distributes to the borrower, not what the plant earns.
- What is excluded?
- The Pelican's Jaw ratio excludes 'any test revenue, Project Revenue received prior to the Term Conversion Date or Pre-Completion Revenue,' other than amounts placed in the early generation reserve. Insurance proceeds are excluded from project revenues except business interruption insurance.
- Is CAFD the same thing?
- No. Cash available for distribution (CAFD) is a company-level measure of cash for shareholders. Clearway Energy defines CAFD as Adjusted EBITDA plus and minus a list of items, including distributions to noncontrolling interests, maintenance capital expenditures, cash interest paid, income taxes paid and principal amortization. CFADS is measured before debt service; CAFD after it.