Corporate and Project Finance Modeling

Chapter 39Overview of Complex Project Finance Modeling Structuring Issues

Some elements of project finance analysis and modeling are among the most difficult challenges in programming and cause continuing headaches for modelers. The worst nightmares often result from circular logic, resolution of which can sometimes make a model far less flexible for structuring analysis and can make calculations very difficult to trace. Project finance models can be very elegant, detailed, and sophisticated in terms of representing a project. They often include Visual Basic for Applications (VBA) programs to resolve circular references (for example, pressing a picture of a beautiful sculpture for operating a macro that sculpts debt). But if you are afraid to use these large and sophisticated models to evaluate the effects of different debt structures such as debt sizing from the debt service coverage ratio (DSCR) or varying the debt tenor and drawdown provisions or refinancing, then the model is all but useless. Similarly, if a model contains hundreds of lines of detail about operating expenses but it cannot be used to measure easily how a few of the key variables affect returns and ability to repay debt, then how can you call it a good model?

The remaining chapters explain how circular references and other similar problems related to sculpting debt, financing funding needs during construction, refinancing, credit enhancement provisions, and reserve accounts can be dealt with in a project finance ...