Global Cash Flow

What does it mean

Global Cash Flow is a very popular term, and what it means is what is the combined cash flow across all of a borrower’s businesses (global, get it?) compared to the combined loan payment requirements for those same business.  This is typically shown as a Global Debt Service Coverage Ratio (DSCR), which is the same calculation as a normal DSCR, but instead of it being a specific business’s EBITDA divided by its Loan Payments, it is the combined EBITDA of all of a borrower’s businesses and those businesses combined loan payments.

Why does it matter

This term matters for two primary reasons.  The first reason is that the idea of a global cash flow is that if there is a “leak” someplace in the borrower’s proverbial bucket, profits from the combined businesses will “leak” out of that hole.  A leak in this example would be a business that does not generate sufficient cash flow to cover its own loan payments (negative cash flow).  A business with negative cash flow, although not great, is not automatically bad, but to know how serious it is, you must look at the shortfall in the context of the borrower’s total (global) cash flow.  If there is sufficient excess cash flow from other businesses, then the negative cash flow business doesn’t seem so bad, if there isn’t, it means the borrower’s on an unsustainable path, and the shortfall should be addressed quickly.  

The second reason this term matters is because it will be something frequently asked about by your regulator.  I’m not saying that just because your regulator asks, it is important.  The reason they are asking is for the reason I just described above, but making sure you address a regulator’s common thoughts and concerns on an on-going basis only helps.

Somethings to think about when preparing a global cash flow:

•  Make sure all income/payments are for the same duration (if income is only 9 months worth, make sure you are only including 9 months of payments)
•  For businesses where the borrower has partners, try to understand how distributions from those other businesses are determined.  If the borrower must receive permission from their partners, it could impact how easy they can pull cash from that business to supplement other businesses
•  Make sure all loan payments are shown as the minimum payment necessary to remain current

Other Relevant Terms

• Capacity
• Debt Service Coverage Ratio
• Income Statement
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