Glossary Terms

Debt vs. Equity

An amount of money borrowed and owed by one party to another is considered debt. For example: bonds, loans, and commercial paper. Equity is a term whose meaning depends very much on the context, but in general, it refers to ownership in any asset after all debts associated with that asset are paid off.

Debt-to-Capital Ratio

A measurement of a company's financial leverage, calculated as long-term debt divided by long-term capital. Total debt includes all short-term and long-term obligations. Total capital includes all common stock, preferred stock, and long-term debt. This capital structure ratio can provide a more accurate view of a company's long-term leverage and risk, since it considers long-term debt and capital only. By excluding short-term financing in its calculation, the ratio provides an investor with a more accurate look into the capital structure a company will have if they were to own the stock over a long period of time.

Debt Service Coverage Ratio (DSCR)

The ratio of net operating income to the amount of money that is required to make regular debt payments. A DSCR of greater than one means that the project is taking in enough income to cover payments on loans. A number of less than one means that the project will have to dip into reserves or other financial resources to cover debt payments. Lending institutions generally frown on lending to projects that have a DSCR of less than one.

Coverage Ratio

A type of accounting ratio that helps measure a company's ability to meet its obligations satisfactorily. A coverage ratio encompasses many different types of financial ratios. Typically, these kinds of ratios involve a comparison of assets and liabilities. The better the assets "cover" the liabilities, the better off the company is.

Covenant

A promise in an indenture, or any other formal debt agreement, that certain actitivities will or will not be carried out. The purpose of a covenant is to give the lender more security. Covenants can cover everything from minimum dividend payments to levels that must be maintained in working capital.

Community Wind

Locally-owned, commercial-scale wind projects that optimize local benefits. Locally-owned means that one or more members of the local community has a significant direct financial stake in the project other than through land lease payments, tax revenue, or other payments in lieu of taxes. The term Community Wind refers to the method and intention of development rather than the size of the project.

Community-Based Energy Development (C-BED)

2005 Minnesota law requiring Minnesota utilities to establish tariffs for wind energy projects meeting specific requirements for local ownership. The tariff sets a framework for negotiation of power purchase agreements between utility companies and qualifying community-based energy projects where the payment for energy in the first 10 years of the project is higher than in the last ten years. Utilities are not obligated to enter into C-BED contracts, Under the original C-BED legislation, the tariff rate was capped at a net present value of 2.7 cents per kilowatt hour calculated over the life of the power purchase agreement (using the utility's normal discount rate). This cap was eliminated in 2007.

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