Which evaluation metric is used for assessing the likelihood of default in a borrower?

The Debt Coverage Ratio is a key metric used in assessing the likelihood of default for a borrower. This ratio measures a borrower's ability to generate sufficient income to cover its debt obligations. It calculates how much cash flow is available to pay current debt payments, which is essential in determining the financial health of a borrower. A higher Debt Coverage Ratio indicates that a borrower has more than enough income to cover their debt obligations, suggesting a lower risk of default.

In contrast, the Current Ratio assesses short-term liquidity but does not directly indicate a borrower's ability to repay long-term debt. Net Asset Value pertains more to the overall value of a company's assets and does not specifically address cash flow relative to debt. The Loan to Value Ratio is primarily used in the context of real estate to evaluate the ratio of debt to the value of an asset, but it does not sufficiently indicate a borrower's ongoing ability to produce cash flows to meet debt repayments. Thus, the Debt Coverage Ratio is the most relevant metric for assessing default likelihood among these options.