Advanced Project Finance Analysis & Modelling

Course Benefits

•Basic corporate model with macros and instructions to create comprehensive analysis;

•Fully developed financial models with debt structuring, debt sizing, contract pricing and sensitivity analysis;

•Time series software that incorporates volatility, mean reversion and other parameters into models;

•Monte Carlo simulation software that combines times series analysis with financial modelling;

•Software that computes implied volatility and option pricing using the Black Scholes model;

•Yield spread models that computes the required yield spreads on project finance debt form time series analysis;

•Corporate modelling software that extends project finance models to evaluate valuation of entire corporations;

•Forward pricing software that projects prices from marginal cost analysis;

•A variety of macro exercises that compute debt capacity, resolve circularity, develop tornado diagrams and construct vintage depreciation.

Comprehensive Project Finance Analysis is a four day course that covers financing of projects, risk analysis of projects and financial modelling of projects.

The course addresses a wide variety of financial, statistical, programming and economic issues. Financial subjects covered in the course encompass sources of debt and equity finance for projects, risk analysis of projects, development of covenants and cash flow traps for senior and subordinated debt issues, use of option pricing concepts to measure risk and credit spreads, and credit scoring of project finance debt. Economic topics deal with pricing of PPA and BOOT contracts, commodity price risk assessment, cost and benefits of political risk insurance multilateral and evaluation of alternative types of risk in projects. Programming issues addressed in the course include designing macros relevant for project finance models, auditing financial models using a projected balance sheet, resolving circularity associated with debt service reserves, modelling cash flow waterfalls and organising project finance models for effective presentation to investors. Statistical concepts addressed in the course include measurement of volatility, mean reversion and boundary conditions associated with economic time series and implementation of Monte Carlo simulation in project finance models.


Edward has created innovative forward pricing, productivity measurement and investment valuation software for consulting clients throughout the United States. He has taught energy economics and finance throughout the world, and formulated significant government policy and corporate strategy in the U.S. His consulting clients include investment banks, commercial banks, research institutions and government agencies on a wide variety of complex valuation and advisory matters. He has constructed a unique framework for electricity price forecasting and valuation using production cost modelling techniques combined with option price theory and Monte Carlo simulation. He is also an adjunct professor at leading University where he teaches courses in microeconomics. Along with his practical experience that covers a multitude of major advisory projects, he has taught specialised courses in financial modelling, electricity pricing, option valuation, mergers and acquisitions and contracting to investment banks, commercial banks, industrial corporations and electric utility companies.

He was formerly Vice President at the First National Bank of Chicago where he directed analysis of energy loans and also created financial modelling techniques used in advisory projects. He has used the models in providing expert testimony on subjects ranging from capital structure to investments in multi-billion dollar nuclear plants to complex valuation of new investments. He received an MBA degree specialising in econometrics (with honours) from the University of Chicago and a BS degree in finance from the University of Illinois (with highest university honours). He has written many articles and is in the process of completing a textbook on valuation of electricity assets.



  • Introduction and Model Structure

  • • What is the big deal about project finance and what makes project finance different from other forms of financing?
    • Where does debt and equity money come from these days in project financing?
    • What are the benefits of project finance relative to the high fees received by lawyers and bankers?
    • Where has project finance been used and what have been the largest project financings?
    • What type of risks should be evaluated in project finance to test when projects go bad?
    • What are the financial criteria used to quantify project financings?
    • Sources of debt and equity finance
    • Review of funding and risks in selected project finance transactions
    • Key financial metrics in project finance (IRR, DSCR, LLCR and Cash Flow)
    • Analysis of a completed project finance model
    • Background on risk measurement and financial modelling

  • Class Exercise

  • Exercise 1a: Petrozuata Case: PF cost/benefit and risk identification Exercise 1b: Construction of a simple financial model

  • Debt Capacity and Debt Structure

  • • Comments on spreadsheet style and conventions
    • Building block approach to modelling
    • Basic mechanics of project finance models
    - Separation of construction period from operating period
    - Sources and uses of funds statement during the construction period
    - Cash flow, net income, equity balance, construction financing and income taxes
    - Internal rate of return on the project and central concept of free cash flow
    - Construction of a balance sheet and use of a balance sheet in auditing the model
    • Interest during construction
    • Accounting
    • Illustration of impacts in completed model
    • Circularity problems
  • Class Exercise

  • Exercise 2a: Base model layout and financial Statements without Debt (1 hour) Exercise 2b: Addition of debt leverage to the basic model

  • Risk Analysis and Economic Assumptions

  • • Market risks in project finance
    - Capital expenditures
    - Forward price
    - Volume – capacity utilisation
    - Input forward price
    - Efficiency
    - Operation and maintenance expenses
    • Contract Risks in project finance (BOOT, PPA and other long-term contracts)
    - Economic rational for long-term contracts
    - Incentive to break contracts
    - Relation between cost and revenue contracts
    - Example of flexible supply contracts
    - Effects of variable supply contracts on cash flow
    • Financial risks in project finance
    - Interest rate risk
    - Hedging of risks
    - Exchange rate risk
    - Political risk
  • Class Exercises

  • Exercise 3a: Computation of price Levels in contracts
    Exercise 3b: Break-even analysis in toll road project finance case with completed model
  • Modelling of Construction Draw-downs and Sensitivity Analysis

  • Monthly draw downs and semi annual debt service
    - Reports for monthly construction
    - Reports for semi-annual debt service
    - Analysis of subordinated debt
    • Debt Sizing Macros
    - Basic goal seek macro
    - Working with range names
    - Alternative ways to enter data
    - Use of range names
  • Class exercises

  • Exercise 4a: Construction profiles and monthly construction
    Exercise 4b: macro exercise
    Exercise 4c: Tornado diagrams

  • Debt Structuring in Project Finance

  • Debt Structure Theory and Analysis
    - Alternative debt repayment structures
    - Introduction to debt as a put option
    - Cash flow sweeps and traps
    - Duration and other debt measures
    Covenants in project finance
    - Positive and negative covenants
    - Project finance covenants versus corporate covenants
    - Covenants and risk analysis of projects
    - Examples of covenants

  • Debt capacity analysis in project finance
    In excel

  • - Sources of debt financing in project finance
    - Amounts of debt leverage for alternative projects
    - Senior versus junior debt tranches
    - Debt term
    - Use of debt service reserves
    - Appropriate benchmarks and information

  • Capital structure theory and project finance objectives

  • - Miller and Modigliani
    - Income taxes
    - Bankruptcy monitoring cost
    - Information signalling
    - Pecking order theory

  • Class exercises

  • Exercise 5a: Eurotunnel Financial Structure
    Exercise 5b: Evaluation of covenants and senior versus subordinated debt using completed model

  • Modelling Complex Debt Features in Project Finance

  • Debt service reserve accounting and modelling
    - Accounting for debt service and other reserves
    - Illustration of impacts in project model
    - Circularity problems
    - Interest income

  • Modelling defaults on debt service

  • - Revenue scenarios
    - Cash flow waterfall
    - Interest after default
    - Repayment after default

  • Modelling covenants and cash flow traps

    - Defining bad time covenants
    - Cash flow sweeps
    - Cash traps
    - Sensitivity
    - Circularity

  • Class exercises

    Exercise 6a: Debt service reserve
    Exercise 6b: Defaults on debt service
    Exercise 6c: Covenants

  • Multilateral Agencies and Project Finance Credit Analysis

  • Multilateral agencies

  • - Export agencies
    - Use of agencies in various types of projects
    - Political risk insurance
    Credit analysis and economic assumptions in models
    - Bond ratings of project finance
    - Credit scoring of project finance
    - Revenue and cost risk
    - Probability of default
    - Loss given default
    - Sources of repayment
    - Sensitivity analysis
    General discussion of southport case
    - History of the project
    - Issues facing the mining projects
    - Model and valuation objectives

  • Class exercises

    Exercise 7a: Economic assumptions and financial
    structure in southport case
    Exercise 7a: Computation of risk spread in Southport
    case with alternative debt Structures

  • Technical Project Finance Modelling Issues

    Circularity macros
    - Alternative methods to resolve circularity
    - Working with range names
    - Use of range names
    - Alternative ways to enter data- Use of range names
    Theory and analysis of leases
    - Tax depreciation versus debt repayment
    - Tax reasons for using leases
    - Formulas for computing lease payments
    Accelerated depreciation
    - Tax depreciation conventions
    - Formulas for computing tax depreciation
    - Vintage computations of tax depreciation
    Working capital
    - Balance sheet approach
    - Use of revenue and expense ratios
    - Cash flow effects

  • Class exercises

    Exercise 8a: Computation of lease rates
    Exercise 8b: Working capital, data tables and resolving circularity

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