So, what is Project Finance? What differentiates it from corporate or leveraged finance? And why does it suit infrastructure projects? And what are infrastructure financing models all about?
Ok, how does this affect the modelling though? You will see a lot of the word ‘typically’ in the descriptions below. This is because project financings are so unique that to generalise them is very difficult. Each model is so different – hence the term ‘Structured Finance’! That said, there are some common characteristics that we will talk about below.
Project Financiers, like financiers in general, love acronyms. In a project finance discussion, you may hear such terms as a PPA, DSCR, DSRA and PLCR or LLCR. These are the main ones you should know about in a model:
Other characteristics of project finance deals are:
The financial model also needs to show clearly:
There are some key project finance characteristics here that are crucial for the financial model:
Other unique project finance features:
To summarise a project finance model, it depicts a project in multiple Excel worksheets that show:
Still interested in project finance? Listen to the Financial Modelling Podcast episode where we interview Dario Musso, head of Infrastructure Finance at Rand Merchant Bank, on the importance of financial modelling for infrastructure projects.
Good luck and happy financial modelling!