Project Finance Modeling Training

Introduction

Modern project finance transactions require a high level of expertise in building financial models which are reliable and flexible to accommodate the changing requirements occurring during the life of a project. This course covers such issues as how to model the role of debt, debt covenants, cash waterfalls, inter-creditor relations, restructuring and rescheduling of debt, how to model risk, and the role of equity and its rewards. In this course you will build and evaluate a range of project finance models, covering projects as diverse as Public-Private Partnerships (PPP), major energy investments and private hospitals. You will overcome the most complex aspects of building a reliable model, including uncertainty, currency and timescale mismatches, debt amortization, depreciation, control account waterfall, cost structures, and the ability to easily shift time scales, as well as the ability to identify and control key sensitivities through spreadsheet simulation.

Objectives

• Overcome the most complex aspects of building a reliable project finance model and explore the role of equity and its rewards
• Appreciate the structure of a project finance model, its relationship with project
• Contracts and risks it models and be able to produce a detailed model that meets all users’ requirements
• Understand and model debt, debt covenants, cash waterfalls, inter-creditor relations, restructuring and the rescheduling of debt
• Be able to model the equity return of a project finance project in excel from the sponsor’s perspective

Training Methodology

This is an interactive course. There will be open question and answer sessions, regular group exercises and activities, videos, case studies, and presentations on best practices. Participants will have the opportunity to share with the facilitator and other participants on what works well and not so well for them, as well as work on issues from their own organizations. The online course is conducted online using MS-Teams/ClickMeeting.

Who Should Attend?

This course is designed for professionals who are seeking to improve their technical modeling skills including

• Bankers and financiers involved in project finance
• Directors and business development executives from corporate, equity sponsors, and consultancies
• Trade finance managers
• Accountants and lawyers.

Course Outline

Using Excel for Modelling

• Worksheet organisation
• Data input, management and verification
• Use of colour/add-ins
• Naming of cells
• Location of input variables
• Review of Excel functions and their use
• Macros and their use
• Goal seeking
• Optimization
• Circularity and how to resolve it
• Working with range names
• Graphs and charts
• What is needed from Excel and what is superfluous
• Principles of spreadsheets and workbooks

Project Cash Flow

• Limited recourse
• Quantification and allocation of risk
• Structuring and financing solutions
• The role of Islamic finance in project finance structures (with case studies)

Project Finance Models

• The fundamentals of project finance model design
• Objectives of project finance models
• Design, testing and feedback
• Model sensitivity and auditing
• Definitions and analysis
• Revenue and cost modelling
• Cash adequacy, recourse, standby and liquidity
• Financial coverage ratios and the bank perspective

Equity Valuation

• Equity NPV/ IRR and project IRR
• XNPV, XIRR, MIRR
• Modelling cash flow and ratios
• Allowing for accountancy – depreciation, tax and capital allowances

Project Dynamics

• Demand and capacity-driven forecasts
• Consistency of capital expenditures and volume
• Operating revenue and expense drivers
• Cash flow design

Project Risks

• Supply risk
• Market risk
• Currency or foreign exchange risk
• Operation risk
• Environmental risk
• Infrastructure risk
• Force Majeure risk
• Completion risk
• Technology risk
• Political risk
• Financial risk
• Interest rate risk
• Creditworthiness
• Syndication risk

Structures

• Contracts and documents
• Construction contracts
• Feedstock or fuel supply contracts
• Off-take contracts
• Operations and maintenance contracts
• Shareholder’s agreement
• Financing documents

Project Finance in Practice

• Design tolerance
• Dealing with escalation/inflation
• Dealing with non-correlated variables
• Pre-completion elements
• Estimating damages

Project Finance Model Issues

• Depreciation of fixed assets
• Control accounts – waterfall/cascade
• Status checking
• Modelling securitization in project finance
• Working capital

Approaches to Rating in Project Finance Models

• Debt issues sheet
• Financial statements
• Introducing flexible time dimensions
• Debt amortization schedules
• Senior debt, mezzanine and equity tranches

Using Project Finance Models

• The input of models to the decision-making process
• Modelling a PPP transaction
• Deciding between corporate and project finance
• Benefit allocation between stakeholders

Building A Project Finance Model

Based on a real example, provided by an equity investor in a project finance transaction, you will construct and use a model for the transaction. This exercise will include:

• Project review
• Analyzing the inputs
• Dealing with input priorities
• Data plausibility
• Cash flow projections
• Loan assessment
• IRR NPV and other valuation analysis