Debt Service Logic

This article explains debt service logic in Model Reef.

You will learn:

• How interest and principal repayments are calculated.

• How they appear across P&L, Balance Sheet, Cashflow and the Cash Waterfall.

• How to think about debt service in scenarios and valuation.

Debt service represents the cash required to meet loan obligations.

1

Components of debt service

Debt service in Model Reef includes:

• Interest expense

  • Calculated on opening loan balances and any relevant rate drivers.

  • Appears in the P&L below EBIT.

• Interest paid

  • Cash outflow when interest is actually paid.

  • Appears in Operating cashflows and in the Cash Waterfall financing section.

• Principal repayments

  • Cash outflow for reducing loan balances.

  • Appear in Financing cashflows and in the Cash Waterfall debt movement section.

  • Do not appear in P&L directly.

Together, these make up the total cash burden of debt in each period.

2

Loan structures and debt service

Model Reef can represent different loan structures via Liability variables, for example:

• Amortising loans

  • Principal repaid over the term according to a schedule.

  • Interest declines as the principal reduces.

• Interest only loans

  • Only interest is paid during the interest only period.

  • Principal repaid in a bullet or refinanced later.

• Custom or manual structures

  • Drawdowns, interest and repayments tailored through explicit schedules or formulas.

Debt service amounts are then derived automatically from these structures and timing settings.

3

Debt service across the statements

Across the statements:

• P&L

  • Shows interest expense.

• Balance Sheet

  • Shows loan balances and any interest payable between accrual and payment.

• Cashflow Statement

  • Shows interest paid in Operating cashflows.

  • Shows principal repayments and new drawdowns in Financing cashflows.

• Cash Waterfall

  • Shows interest paid and net debt movements in clearly labelled lines.

This integrated view allows you to quickly see the burden of debt on cash and equity.

4

Debt service in scenarios and planning

You can test debt service robustness by:

• Changing interest rates.

• Changing principal repayment profiles.

• Adding or removing new debt tranches.

• Combining these with different revenue, cost and capex paths.

Key questions include whether:

• Operating cashflow comfortably covers interest and scheduled repayments.

• The business needs further funding to meet obligations.

• Dividends or growth capex should be adjusted in tight periods.

Model Reef does not enforce hard covenants by default, but you can build dashboards and KPIs to monitor coverage ratios.

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