Advanced FM Course: Project Finance Modeling
Project Finance Modeling
Module III
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Advanced FM Course: Project Finance Modeling
Agenda
Project Finance: An Introduction
Project Finance Modeling: An Introduction
Date Functions in Excel
Risk Analysis
Modeling Cash Flow Waterfall
Circular References and Modeling IDC
Quiz
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Advanced FM Course: Project Finance Modeling
Project Finance: An Introduction
The financing of long-term infrastructure, industrial projects and
public services based upon a non-recourse or limited recourse
financial structure where project debt and equity used to finance the
project are paid back from the cash flow generated by the project.
Characteristics Risks
Creation of SPV Delays in projects
Multiple sponsors Cost overruns
Involvement of a number of Input and output quality
parties Reliability of revenue
Non-recourse loan forecasts
Long time horizon Other
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Advanced FM Course: Project Finance Modeling
Project Finance Modeling: An
Introduction
Characteristics
Different phases with different risks
No history on cash flows
Focus on cash flows rather than
Objectives
earnings
Projections generally cover the
Assess the economic
entire defined lifetime of the project
feasibility of the project
Typically has categories relating to
Assess specific risks
capital expenditure, revenue
forecast, expense forecast, debt
schedule, financial statements,
equity return and valuation and
scenario analysis
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Advanced FM Course: Project Finance Modeling
Date Functions in Excel
Timeline best practices
EOMONTH – Returns the serial
number of the last day of the Reserve a place in the
month before or after a model for the time line
specified number of months
Define age variable at
EDATE – Returns the serial the start itself
number of the date that is
indicated number of months Explicitly show the start
before or after the start date. date and the end date of
the project
Alpha Constructions example Add switch variables
(attached excel)
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Advanced FM Course: Project Finance Modeling
Risk Analysis
Risk is usually measured as a dispersion of outcomes. In case of
project finance, riskiness of projects is typically measured by the
dispersion of its NPVs or IRRs.
Handling delays in projects
Sensitivity analysis – Change in single variable
Scenario analysis – Change in multiple variables
Use of data tables
Example in excel
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Advanced FM Course: Project Finance Modeling
Modeling Cash Flow Waterfall
A cash flow waterfall summarizes the priority of each cash inflow and
outflow in a project finance model.
Key line items of a typical cash flow waterfall
Operating Cash Flows or Cash Flows Available for Debt Service (CFADS)
Less: Senior Debt Service (Interest + Principal repayments)
Cash Flows available to Junior Investors
Less: Junior Debt Service (Interest + Principal repayments)
Cash Flows after scheduled debt repayments
Less: Withdrawals from DSRA/(Additions to DSRA)
Cash flows available to equity investors
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Advanced FM Course: Project Finance Modeling
Circular References and Modeling IDC
Costs incurred during construction phase
Why construction funding is required
Circular logic while calculating interest during construction
Calculating IDC using circular reference (Explained with the help of
an example)
Using circular references - A word of caution
Alternative ways of calculating IDC (Explained with the help of an
example)
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Advanced FM Course: Project Finance Modeling
Summary
Project finance: An introduction
Project finance modeling: An introduction
Date functions in Excel
Risk analysis, including delays in project implementation
Modeling cash flow waterfall
Circular references and modeling IDC
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Advanced FM Course: Project Finance Modeling
Quiz 1
Which of the following is NOT a key characteristic of project finance?
a) Generally, a special purpose vehicle (SPV) is created for such
projects
b) Risk of the transaction is measured by the creditworthiness of
the project itself
c) In case of default, the loan amount can generally be recovered
from the assets of the project sponsors
d) None of the above
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Advanced FM Course: Project Finance Modeling
Quiz 1
Which of the following is NOT a key characteristic of project finance?
a) Generally, a special purpose vehicle (SPV) is created for such projects
b) Risk of the transaction is measured by the creditworthiness of the
project itself
c) In case of default, the loan amount can generally be recovered from the
assets of the project sponsors
d) None of the above
The correct answer is c).
The loans are most commonly non-recourse, secured by the project assets and
paid entirely from the project cash flows, rather than from the assets of the
project sponsors.
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Advanced FM Course: Project Finance Modeling
Quiz 2
Which of the following statements relating to Excel is/are false?
a) EOMONTH function returns the serial number of the last
day of the month before or after a specified number of
months
b) Data tables are effective tools for scenario analysis
c) In iterative calculations, the maximum number of times
the excel recalculates can be set by the user
d) All the statements are correct
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Advanced FM Course: Project Finance Modeling
Quiz 2
Which of the following statements relating to Excel is/are false?
a) EOMONTH function returns the serial number of the last day of
the month before or after a specified number of months
b) Data tables are effective tools for scenario analysis
c) In iterative calculations, the maximum number of times the
excel recalculates can be set by the user
d) All the statements are correct
The correct answer is option d).
All the three statements regarding Excel are correct.
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Advanced FM Course: Project Finance Modeling
Thank You
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