On Sunday night I was contacted for a last minute change of schedule of the pre-conference financial modelling workshop of Terrapinn Corporate Finance World at the Marriott in Sydney. The organised presenter, Nick Crawley, MD of Navigator had cancelled due to health issues following his trip last week to Nigeria.

Project finance modelling and model audit processes

Given my background of being a co-founder of Navigator Project Finance I had no problems sticking to the agreed agenda as organised by Navigator Project Finance, and I quite enjoyed working through material that I was part of developing yet haven’t been actively involved in for some time. Working through a sample project finance model for a wind farm model reminded me of many late nights in my project finance days sweating over time-critical transactions including Acciona, Oxiana, Ma’aden Infrastructure, LynasCorp, CopperCo, Reliance Rail…

A model audit perspective on project finance modelling methodologies

Project finance is a field where the model is of higher significance than in many other areas of finance. The underlying projects and industry sectors are also often regarded as more operationally complex than more typical corporate finance sectors.

The combination of strict reliance on the project finance model and the detailed operational calculations and highly engineered debt structures results in an environment where good modelling is highly rewarded, and bad modelling is an absolute career-stopper. This was the background of the presentation for the Terrapinn Corporate Finance World financial modelling workshop in Sydney earlier this week.

Making a project finance model ready for transaction time

In the Terrapinn Corporate Finance World financial modelling workshop we worked through a sample Navigator project finance model with the perspective of outlining critical functionality at the time of transaction. To make sure that your project finance model is ready to go through the stress of a senior debt transaction, the following, very high-level, check list outlines the minimum functionality required.

• Clear tab structure so that users of your financial model quickly understands the structure
• Disclaimer sheet outlining confidentiality and acceptance
• Cover sheet with transaction descriptions and contact details for transactional and/or modelling queries
• Log sheet mapping changes in key inputs/outputs to person/time/file
• Summary sheet tailored to the current audience. In some cases this should be prepared purely for a banking audience (stronger focus on key ratios, DSCR, LLCR, PLCR, etc) and on other occasions an external equity focus is required (IRR, NPV, upside scenarios, capital requirements, exit multiples, etc)
• Assumption sheet with ALL inputs (they should definitely not be scattered through-out the model).
• Assumptions should be clearly grouped into relevant sections with headings and sub-headings
• Scenario manager to facilitate quick, consistent and automated generation of scenario analysis outputs
• If macros are required, there should be a Macro sheet with clear documentation of how the macros are to be used, and when
• Integrity checks confirming the integrity of the financial model at all times. Ideally this should also be linked to a master-check which automatically checks the integrity of all pre-defined scenarios in the scenario manager all the time using Data Table functionality. The result from Integrity Checks should be clearly indicated on all work sheets, including the Summary sheet to avoid people relying on the financial model in scenarios where the integrity is flawed.
• Model audit should be cinsidered and formulas should be consistenly copied across the rows and there should be no hard-coded values over-riding calculation
• Calculation sheets should be professionally presented with simple calculations and limited off-sheet references. Line summaries are critical
• Timing, flags, escalation/growth/cpi should be calculated only once and then brought into the relevant sheets
• Consistent presentation should be maintained (using Excel Styles makes this a hundred times easier)