Course Outline Project Finance Modelling Course 3 Days Overview This training course provides the opportunity for delegates to practise and improve their abilities in project finance modelling using Excel. The course is conducted in a work shop format, with the emphasis on learning by doing. On this course, and as a key learning tool, participants start with a blank spreadsheet and create a project finance model from scratch. Delegates are guided through a complete model build up and are shown all the steps they need to take. All through the course plenty of guidance and assistance is given by the course instructor. As part of their work on the course delegates create a full cash flow forecast for a project. Delegates can then consider the impact of a change in project parameters, analysing how the project performs under stress and how key financial ratios and bank covenant tests respond with a change in circumstances. Methodology for the project finance course As part of their work on this course delegates build up a project finance model for a real case business. At the end of the course participants will have a record of their own work and a permanent record of the steps they have taken to create their own project finance model. By the end of the course participants will understand: The role of the project model Links to legal documentation Good model structure and design The steps to take to build up a project finance model How to develop key outputs, iterating with assumptions to optimise the model against its results Guidelines for good modelling practice. The time on the course is designed to provide participants with the tools they need to continue with their own efforts to analyse and model project finance deals as they return to their workplace. This program is designed as a first course for people who would like an opportunity to practise and improve their ability to model cash flows in Excel. The course is conducted in a work shop format, with the emphasis on learning by doing. During the program delegates work as a team to create a cash flow model from scratch.
Day 1 introduction to project finance modelling Session 1: the role of the project finance model Key elements of a project finance model Typical project finance contract structure Implications for modelling Group exercise. Course participants work in small teams to create a structure diagram for a project finance model. Session 2: introduction to modelling case study (i) Starting to build the model Sources of revenue Assumption setting: identifying and separating key assumptions Escalating revenues: pitfalls in escalation factors What do we conclude about good model structure and design: right from the start? What have we discovered already about good modelling practice? Modelling. Delegates work in small groups to build a model that incorporates the key elements of a typical project finance deal. Session 3: model time lines Coping with delay How can we build in flexibility e.g. changes in financial close, construction period, start date and operations? Modelling case study. Delegates look at how they could modify their own model to incorporate flexibility. Session 4: modelling case study expenses How might we model expenses in this project? What about in other projects? Escalating expenses Modelling case study. Delegate teams build expenses into their own project model. p2
Session 5: modelling cash flow Modelling the cash flow Key linkages to other parts of the model Modelling case study. Delegate teams complete a cash flow forecast in their project model. Day 2 more advanced project finance modelling topics Session 6: modelling capex Phasing up front cap ex within the model Project delay: how could we design the model so that it accommodates delay? What contractual arrangements need to be reflected in the model? Incorporating ongoing operational cap ex Modelling case study. Delegate teams forecast capex in their project model. Session 7: modelling capital structure Sources and uses of funding Fees on the deal Mapping out a capital structure for the deal Incorporating a simple funding structure within the project model Forecasting a simple debt schedule Linking to other statements and adjusting cash flow Modelling case study. Teams translate capital structure for the deal into their project model. Session 8: determining debt capacity and structuring debt Modelling a more complex and realistic debt structure Discussion around the role of different debt instruments How might we model debt different debt instruments? The influence of different debt structures in projects Estimating and optimising debt capacity Real debt structuring case study. Delegates review a real debt structure and model extract prepared and released publicly by a well-known investment bank. Based on what you have learned, how has this analyst got it wrong? What could you do better? Delegates work in small groups to model the deal a different way, reaching a dramatically different conclusion. p3
Session 9: modelling tax Looking at the project model, which items are likely to flow straight through to the tax return? Which are going to be spread over time? How do we model the tax expense? How do we model tax losses? Modelling case study. Delegate teams forecast tax expense in their model and incorporate it into cash flow. Day 3 project finance modelling case study Session 10: defining key model outputs What are the most important outputs? DSCR, LLCR, PLCR How can they be presented clearly? How is your deal doing? Any breaches? Conditional formatting Modelling case study. Teams complete a new sheet within their model something that contains key outputs and is quickly and easily readable. Session 11: the link to project appraisal Investment appraisal crash course How is DCF calculated in a project model? Why do we discount? How is the discount rate determined? How is NPV calculated? Elephant traps: using Excel to calculate NPV Understanding IRR 3 ways of understanding/ calculating IRR Elephant traps: using Excel to calculate IRR Modelling exercises. Delegates review simple exercises in investment appraisal and consider how investment appraisal could be incorporated in their project model. p4
Session 12: introduction to modelling case study (ii) Introduction to real Harvard Business School case study The challenge: investment appraisal for a real and complex project finance deal There is a lot of information here! Who are the key players? What are their roles? What is the likely contractual structure? What are key contractual risks? What are the financing options for the project? Peculiarities of this deal Pros and cons of the financing options How would you structure a project model for this deal? How would you conduct your investment appraisal? What is the role of the boutique advisory firm involved? What really happened? Case study. Delegates work in small groups to gain an understanding of project structure, implications for the model and investment appraisal. Session 13: other topics Excel tips and help Delegates are provided with the opportunity to examine and get help with key Excel functions that are new to them Good modelling practice guidelines Model audit How might we audit a model? Working with the model What scenarios could we run? How could we structure the model to cope with them? Note: the time spent on this session depends on time available on day 3 and the extent of delegate interest. Course conclusion. Best practice project finance modelling Delegates who have improved their understanding of and have had experience of modelling project finance deals Simple and clear reference Excel models providing participants with a platform for future a analysis and decision making Participants who, at the end of the course, understand the drivers on project finance deals and how project parameters can be structured to suit the various parties p5