Project finance modelling
What are financial models used for in project finance?
Introduction to the modelling exercise
Developing a project finance model for an independent power project (IPP)
How the exercise applies to other types of project What is involved in building a financial model?
How to approach the problem
Gathering the information you will need
Understanding the requirements of the model
The structure of a model
Good modelling practice
How to structure your models so that they can easily be understood and audited
Separating assumptions from calculations
Assumptions required for construction phase calculations
Sources of information
- Costs and timing of costs
Practical exercise: participants will start to construct their project finance models. They will be taught how to use named ranges and learn how to establish a timeline using date functions. The course director will provide guidance on the use of Excel where necessary and will break to highlight key learning points.
Modelling the effects of inflation
Modelling in multiple currencies
Construction phase sensitivities
Using lookup functions
Construction phase funding
Modelling interest during construction
How to calculate commitment and arrangement fees
Building a debt tracking account
What are they?
How do they occur?
- Why should we avoid them?
Practical exercise: participants will develop a construction funding worksheet including idc, commitment fees and a debt tracking account
Review of first day’s topics
During day two, participants will continue to build their models, adding operating phase revenues and costs
Modelling project revenues
How are the revenues of project financed projects structured
The reasoning behind tariff structures
The differences between capacity, availability and output
Modelling bonus and penalty mechanisms
Dealing with multiple currency tariffs
Operating revenue assumptions
Practical exercise: participants will build operational revenue calculations including fixed/variable tariff elements and bonus/penalty mechanisms. The course director will also show real life examples of thesemechanisms.
Setting up the operating costs calculations
Source of assumptions
- Operating cost sensitivities
Practical exercise: participants will develop operational cost calculations including fixed and variable components applying the relevant indexation to each of the cost items.
Practical exercise: participants will develop tax calculations including depreciation and a tax loss tracking account.
Review of second day’s topics
Determining the project’s debt capacity
Practical exercise: participants will develop funding calculations including base and standby debt tracking accounts and debt service reserve account.
How to model different senior debt structures
Cash sweep mechanisms
- Bullet loans
How to construct a cashflow statement
Key funding ratios
Introduction to NPV and IRR
Calculating cash available for debt service
Learn how to calculate annual debt service cover ratios and loan life cover ratios
Practical exercise: participants will develop a cashflow worksheet including calculation of key funding ratios. They will learn how to calculate the debt capacity based on these funding ratios.
Use of macros
How they are used in project finance deals
The dangers and precautions that could be taken Income statement
Pulling together relevant information to produce an income statement
Dividends and other points related to equity financing
Techniques for project appraisal
Review of first three day’s topics
Summary and Q&A session followed by quiz
Output from financial model
Problem solving session: participants are invited to ask questions related to using the models they have built in their own workplaces, or ask questions related to models they have inherited.
Course summary and close