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Project Finance Advanced Modeling with Excel and Palisade @RISK 5.0
Part 1 – Project Finance vs. Corporate Finance
- Corporate finance is a balance sheet exercise
- Project finance is a cash flow exercise
- “Cash is King”
- The Time Value of Money (“TVM”)
- “A Dollar Today Is Worth More Than A Dollar Tomorrow”
Part 2 - The Role of the Model & Common Rules
- Reflection of the Project & Financing Documents
- An easily manipulated model to reflect changes in the deal
- A tool to support negotiations
- “Always negotiate off the model and never model off the negotiations”
- Run different cases and scenarios
- Essential model lay-outs and rules
Part 3 - The Risk Matrix
- What is Risk?
- A statistical perspective
- A level view of risk
- Risk is not pejorative
- What is Reward?
- Does the reward adequately compensate the risk
- “Beauty is in the Eye of the Beholder”
- How do we approach risk from a modeling standpoint?
- Matching risk mitigation with documents and cash flow
Part 4 - Introduction of a Project for Modeling
- The project structure and the model
- Project Documents are financed, not models
- Appropriately representing document structures in the financial model
- Nominal versus real models
- Real models underestimate real cash taxes but stretch revenues and profits
- Passing through the inflation
Part 5 - The Project Documents
- Overview of the major Project Documents used for the modeling exercise
- Which can documents can be modeled and which cannot
- How to translate these Documents to the model
Part 6 - The Assumption Page
- Off-take Contract
- Capacity payments vs. variable-based payments
- Concept of time-based versus unit-based contracts
- The cornerstone contract to high leverage project finance structuring
- Operational Contract
- Construction Contract
- Fully wrapped contracts vs. cost-plus contracts
- Supply/Raw Materials Contract
- Reserve contracts vs. supply contracts
- Financial Term Sheets
- Including quantitative elements of security packages
- Project Taxes
- Development and construction taxes
- Operational taxes
- Impact of depreciation on operational taxes
- General Macroeconomic Indicators & Currencies
- Inflation and escalation impact
- Purchasing power parity (“PPP”)
- Capital Costs & Project Timing
Part 7 - Operations
- Correctly matching units
- Crossing out appropriate units and tariffs to arrive at cash
- Fixed and variable costs
- Matching cost drivers to revenue drivers
- Escalation factors
- “How many angels are on a pinhead?”
- Operational taxes
- Accurately assigning appropriate taxes
Part 8 – Construction
- Various draw profile & timing
- Equity first
- Pro-rata
- Philosophy on timing returns and risk vis-à-vis construction draws
- Interest During Construction (“IDC”) & Commitment Fees
- Contract splitting for on- & off-shore costs
Part 9
– Insurance
- Construction
- Operation
- The role in the Security Package
Part 10 – Taxes
- Identifying and negotiating tax holidays
- Matching appropriate domestic and foreign taxes in the model
Part 11 - Depreciation
- Different modeling techniques
- The “Trapped Cash” dilemma
- Thin-Capitalization issues
Part 12 - Financing(s)
- Circularity
- Debt profiles
- Mortgage, or annuity, style
- Level-Principal style
- Sculpted debt
- Currencies
- Matching currencies to revenue drivers
- The FX dilemma, forecasting future spot rates
- Repayment terms (including grace periods)
- Escrow accounts/funding and/or Letter of Credit
- Model switches and masks
- Coverage ratios
Part 13 - The Income Statement
- Flow of information from worksheet tabs to the Income Statement
Part 14 - The Balance Sheet
- Balance checks
- Addressing Working Capital in the Current Accounts
- Flow of information from worksheet tabs to the Balance Sheet
Part 15 - The Statement of Cash Flows
- Flow of information from worksheet tabs to the Statement of Cash Flows
- Waterfall of payments
- Trapped Cash
- Cash accounts and distributions
- Issues related to retained earnings
Part 16 - Equity Returns
- IRR calculations
- Addressing NPV and Weighted Average Cost of Capital (“WACC”)
- Theory versus reality
- “Don’t give away the farm”
Part 17 - Loan Values
- Calculating present value of the loan
Part 18 - “Pricing the Deal” and Scenario Analysis
- Review potential risks in the equity model and project documents
- The equity’s view
- Lenders’ view
- The other participants’ views
- Refining role of a risk matrix and reflection in the model
Part 19 – Monte Carlo Simulation using Palisade @RISK
- Identifying primary drivers and outputs for Risk Analysis
- Selecting probability distributions
- Selected topics for Monte Carlo analysis
- Liquidated damages during construction
- Cost over-runs
- Performance shortfalls
- Delay in Start-up
- Market risk
- Off-take
- Inputs
- Feedstock
- Renewable related risks like water and wind
- Financial risk
- Hedging currency and interest risk
- Sizing debt
- Liquidated damages during construction
- Using Palisade @RISK’s Rank Order to negotiate contracts techniques
- Using Palisade @RISK’s Reports and Analyses tools to describe risk versus reward
- Using Palisade @RISK’s Graphs and tables to present concise and useful reports and presentation
Part 20 – Running Sensitivities & Documenting Changes
Available Dates
- No available dates.
