Financial Modeling and Project Finance

Unless it's your job, you will not have the necessary time or info to build a PF model. They're ugly things.

Never mind, I found what I was looking for. Silver banana for Oreos. Mods, feel free to close this car crash of a thread.

Principles of project finance will teach you a lot about the process; but is quite light on modelling. I've never really seen a good resource for PF outside of bank resources. M

I've gotta go with Oreos here, not from experience but anecdotes. Everyone I've talked to about finance education pretty much says the same thing: you can get a very basic understanding from a book, but even that's not really all that helpful. This is mainly because any book written on project finance is pretty generalized and projects are very different depending on the industry/what they're looking at.

If you can get your hands on a company's training materials within the industry you're interested in, that's probably going to be your best bet. Good luck

Project finance is pretty straightforward - generally in the current narket environment people look through to the credit of the underlying lessor and slap an extra 25-50 bps on the corporate credit to compensate for the illiquidity and time spent learning the structure. Corporate desks buy it as a pickup to the corporate credit.

Think about it like this - the only assets that can be financed are assets that throw off cash. In the context of project finance, the income producing asset isn't the physical project, it's the lease signed by the guy using the project. You can slap any notional value you want on a project, but if you lend against it, your debt service can't be covered unless the project is generating cash, and your loan is gonna magically turn into a claim in bankruptcy court. And you'll probably turn into a guy who spends a lot more time with his family than he used to.

Anyways, it's the lease/future lease you're really financing, and an operating lease is essentially just a form of debt that's senior to all other debt. So financing the lease is substantially similar to buying the lessor's corporate bond, with the complicating factors of structure and liquidity.

So yeah, project finance is pretty simple. Just don't get too cute on the structure and you'll be fine.

Building Financial Models: 1st Edition by John Tjia

Here you go: "Advanced Modelling for Project Finance for Negotiations and Analysis" by Charles T. Haskell (ISBN 1-84374-214-4) He is a project developer and modeling trainer, his bio and details are on Vair Companies website

Thoroughly amused.

Thanks for the overview on project finance.

Oreos NYCbandar:

Project finance is pretty straightforward - generally in the current narket environment people look through to the credit of the underlying lessor and slap an extra 25-50 bps on the corporate credit to compensate for the illiquidity and time spent learning the structure. Corporate desks buy it as a pickup to the corporate credit.

Think about it like this - the only assets that can be financed are assets that throw off cash. In the context of project finance, the income producing asset isn't the physical project, it's the lease signed by the guy using the project. You can slap any notional value you want on a project, but if you lend against it, your debt service can't be covered unless the project is generating cash, and your loan is gonna magically turn into a claim in bankruptcy court. And you'll probably turn into a guy who spends a lot more time with his family than he used to.

Anyways, it's the lease/future lease you're really financing, and an operating lease is essentially just a form of debt that's senior to all other debt. So financing the lease is substantially similar to buying the lessor's corporate bond, with the complicating factors of structure and liquidity.

So yeah, project finance is pretty simple. Just don't get too cute on the structure and you'll be fine.

dude, what the duck are you on about.

Okay, I'll try to be brief: PF is cash flow limited recourse lending where your security is the underlying concession agreement. A lease is too narrow a definition. People do not "slap" some extra margin on it. You have to assess the project's ability to generate cash, the sponsor, whether they are PE, a construction company whatever, can let the project go and you will have no recourse to them. The only corporate risk you take in project financing is the construction company's ability to absorb the costs incurred under the turnkey contract. Then the operator's ability to not keel over leaving you have to find a new operator quick. But thats what bonding is for.

Structures are complex. You'll have an spv which'll have all the financing who'll sign up to the project / concession agreement with the obligations detailed under the contracts. Then through back to back agreements you'll de-risk the spv by contracting down the construction, operations etc, usually leaving the spv holding admin style risk. However, it is still incumbent on the project and those operating it to do so in a manner that can generate cash to pay you back as projects aren't like businesses, no-one will refinance a project with 3 yrs until its contracts cease.
At the end the assets are handed back to whoever tendered the project.

This was too brief but typing on my phone is gash

I mean... I don't want to get bogged down into the type of gay little sissy slap fight that's all too common on WSO with you, but for what it's worth I disagree with you, stand by my original comment about who is taking down project finance paper, and would challenge you to hazard a guess about who's buying it if you're going to say I'm off base.

Seriously - my contention is and was that fast money/structured credit guys are being priced out of project finance deals these days because corporate desks are buying it as a basis trade/pick up to the corporate credit. I'm not like... Omnipotent or anything but this is the general theme I see in the markets.

All you did was spew a bunch of garbage about your half-assed understanding of what "project finance" is. I'm all ears if you disagree with my contention. Who's taking this paper down if not corporate desks? Sure as shit not structured credit guys - project finance is way too tight right now. At least in my opinion. If you disagree, make an argument. Tell me what's up. Say something of value.

We can argue all day about the definition of "project inane." I think me and most people that actually play in that market would define it as something with a credit exposure to a specific asset but also often a look through to some corporate or municipal credit. Project finance trades aren't pure asset trades, they're credit + trades. And the look through isn't to the construction company, it's to some real money credit,

For example, a big project finance trade that's been making the rounds (and im sure you've seen if you're actually a market participant) is the Puerto Rico toll road trade. The look through there is to PR, not to the construction company. And there's all the clean energy/solar shit - look through isn't to the guy that built the panels, it's to the guy that owns them.

I mean... Usually when people talk about project finance they mean some structured asset trade + credit exposure. And not to a construction company. Project finance =\= construction lending. And the structures are not complicated ya goofball. Any ABS/structured finance guy will get them immediately.

So yeah... I'm wrong often and appreciate being corrected. How am I wrong here? I'm saying what I see in the market, you haven't said shit. If corporate desks aren't picking this shit up as a basis trade, who is? What's the trade?