Financial covenants in GPU loans: DSCR, contract realisation and loan-to-cost

1. Sizing DSCR: how much can be borrowed

Each draw under a GPU delayed draw term loan is sized against the projected cash flow from a specific customer contract. Nscale's Ward County facility defines the Sizing DSCR as projected contracted cash flows, minus senior operating expenses and capped manager fees, divided by debt service. The public summaries put the required level at 1.30x for Nscale's Microsoft-backed US facilities and 1.20x (described as an "IG Sizing DSCR") for its European facility.

A higher sizing DSCR means a smaller loan for the same contract. It is the main lever lenders use to price customer credit risk alongside the margin.

2. Maintenance DSCR: is actual cash covering debt?

After funding, lenders test actual performance. CoreWeave's DDTL 3.0 defines DSCR as net operating income to debt service for the three full fiscal months before each monthly test date, and requires at least 1.40x from 30 April 2027. The delay gives the borrower time to install the GPUs and ramp up billing before the test bites.

Levels in public CoreWeave facilities range from 1.15x (DDTL 4.0) to 1.35x (DDTL 5.0 and 5.5) and 1.40x (DDTL 3.0). IREN's Hardware 3 financing sets a 1.05x minimum, with a cash trap at 1.10x and a projected 1.20x. Lower levels generally go with stronger customers and tighter pricing.

3. Contract realisation ratio: is the customer paying as projected?

This is the most distinctive test in compute lending. CoreWeave's DDTL 3.0 defines the Contract Realisation Ratio as:

• amounts billed and received under the master services agreement over the last three full fiscal months, divided by
• the projected contracted cash flows for the corresponding period.

The borrower must keep it at or above 0.85x, tested every month from the first month after closing. Early months are annualised from one or two months of data.

Why it matters: a DSCR can look healthy while a customer is withholding payment, claiming service credits or disputing acceptance. The realisation test catches that gap directly, by measuring cash against the model the loan was sized on. It is the compute equivalent of an aircraft lender watching lease rental receipts rather than airline earnings.

4. Depreciating loan-to-cost: is the loan keeping pace with the hardware?

GPUs lose value as new generations arrive. IREN's Hardware 3 financing deals with this through an "LTC Event": on any monthly payment date, the outstanding loans and notes must not exceed 65% of the capital expenditure on the infrastructure less the "GPU Depreciated Amount". As the depreciated amount grows, the permitted debt falls, and the borrower must prepay to stay within it.

This is a cleaner answer to residual value risk than an appraisal-based borrowing base, because it follows a schedule that both sides agree at signing.

5. Equity cures

Most facilities let the sponsor inject equity to cure a missed test, with limits. IREN's documents allow cures without limit until the T4 acceptance date, then no more than six times in total and not on more than two consecutive test dates. Cure equity can be used to pay debt service and prepay, but it does not count towards the DSCR for deciding whether a cash trap event has occurred.

What to check in a term sheet

1. Is DSCR historical, projected or both, and when does testing start?
2. Is there a contract realisation test, and how are disputed or credited amounts treated?
3. How is GPU depreciation handled: amortisation profile, depreciating LTC or appraisal?
4. How many equity cures are allowed, and do they count for cash trap purposes?
5. What happens on a breach: cash trap, prepayment or default?