Project Finance Academy Module 7: Building Project Finance Models

Building Project Finance Models forms Module 7 of the Project Finance Academy. This module looks at the key financial ratios and credit analysis as well as the forecast basis for any cashflow projection. It is designed as a 'build-your-own-model-from-scratch' with the final model used in a course bidding contest. Module highlights include: Project finance modelling objectives Project finance layouts Building logic into the course model Project finance ratio analysis Sensitivities and bidding competition Sensitivity analyses modelling Non-modelling inputs Typical modelling errors
Day 1 Credit and modelling Project finance modelling objectives Link to project finance’s 16 Risks Model usage at different stages of project finance process Liquidated damages Project finance layouts Conventional: operations; cashflows; loan/tax routines - Drawdown routines (%, quarterly, overruns, etc and the ‘split-year’ solution) - Amortisation Styles (linear, annuity/mortgage, and % dedication, and the six others) Cofinancings: multiple tranches/maturities/payment priorities Reserve accounts Currency mismatches Interest rates and inflation Build logic into course model Input sheet Capex/construction Revenues Cashflows Working capital Opex Equity Reserves Summary Loan Taxation Debt service P&L Balance sheet What-if? Compliance Macros Log Practical exercise: You will start to build your own project finance model from the information memorandum inputs. The special aspects of completion delays and overruns will be assessed in the first hands-on modelling then building the capex sheet. Project finance ratio analysis Debt service cover ratio Principal cover Interest cover Loan life PV ratio PV ratios – project/reserve Residual cover/cushion Accounting ratios: profitability; efficiency; liquidity; etc. Practical case study, you will: Discuss the discrepancies in the many different definitions of these ratios Discriminate among the 24 different versions of the DSCR Examine these for the course project finance model you are building Day 2 Sensitivities and bidding competition The design and structure of financial models Objectives Flowchart Modules Menu and structure Help Testing Practical exercise: You will audit the course model for errors using three different auditing techniques, including one not generally recognised within Excel. Another excellent non-Microsoft audit add-in is demonstrated. Sensitivity analyses modelling What if? Other tricks? Scenario analysis Breakeven Practical exercise: You will produce all the classic (deterministic and dynamic) sensitivities expected in Project Financing. The two Excel techniques are done as class/coursework as well as tips on the best ways to present the results graphically. How to massage/finesse the model Ratios Loan amounts Discount rates/leveraged IRR Term Reserves Tax Non-modelling inputs The key input assumptions can overwhelm the accuracy of any model. Six different information sources and approaches are outlined along with actual examples. How does each delegate keep up to date on the choices of input assumptions? Practical exercise: Your task is to find at least three ways to improve the financing result from manipulating the course cashflow model. Typical modelling errors Discounting/escalation Available cashflow Working capital Reserves Replacement capex Residual value Bidding contest using course project finance model The way to translate the modelling (bidding competition) results into the termsheet is the final aspect of the course. The winning team will defend its bid and show how the model achieved the winning result. The final course model itself is often used as a screening model by delegates after the course.