1. Incorporating Actual Values in Construction Period of Project Finance

2. Where to Find Model
Go the Project Finance A-Z Page on edbodmer.com 1
Go to the Google Drive to Chapter 1, then B. Project Finance Model, then Project Finance Exercises 2

3. If you think you have to work on everything in this model it will be torture.
I am a student and learning these things as I go.
This video and file was made as a follow-up to a class as many videos.
Standard Warning

4. Overview of Subjects Covered in this Exercise
Building a Model During Construction Period without Actuals that is flexible for pro-rata and equity first
Using the circular template to incorporate the user defined function.
Quarterly summary, user defined function and actuals.
Use of Historic Switch and Different Formulas in History.
Remaining values and automatic updates.
Overview of Subjects Covered in this Exercise

5. What Not to Do
I have seen models where people manually update the models with actual data by typing over the model values.
This presentation works through how to avoid this issue and automate updating of the models with actual.
Some of the concepts such as incorporating a historic switch are quite simple. Other concepts such as adjusting the circular reference function are difficult.

6. Demonstration of Completed Model
Assume that you have received new balance sheet with actuals. Assume also the EPC cost and the debt percent change. 01
Change the date of the historic period and the forecast will be adjusted. 02
Demonstrate how the new forecast changes with a graph. 03

7. Part 1: Review of Structuring Construction Financing

8. Project Finance Modelling of Construction, IDC and Fees
General issues in modelling the construction phase:
Construction switch and construction expenditures
Summary sources and uses of funds
Use data for debt and equity funding
Use debt commitment for fees
Option with pro-rata or equity up-front
Remaining equity to finance
Pro-rata after initial equity
Compute debt schedule and IDC etc.

9. Illustration of Construction Modelling
Using the Weibull Distribution to Represent the S-Curve
Funding Needs
Include cash requirements (can be somewhat painful issues with capitalised interest)
Include IDC and fees that will cause circular reference when connected to summary sources and uses
Debt Schedule and computation of interest and fees

10. Part 2: Using UDF Template for Solving Circular References

11. User-Defined Functions Applied
The exercise applies three user-defined functions:
End of quarter function
Lookup-interpolate
Circular Template
User-Defined Functions Applied

12. End of Quarter Function
If want to aggregate monthly data into quarterly data
Read in date and test month to determine how many months to the end of the quarter.

13. Interpolate with Look-up
Use to interpolate quarters of actual data into months.

14. Part 3: Updating Models for Actuals

15. 1 2 3 Overview of Model Actuals don’t match the projected numbers:
Assure that the total construction expenditure matches the EPC contract and the debt to capital percent confirms to the target. 2
Update the IDC and fees in the total project cost corresponding to actuals. 3

16. Adjustments to Model for Actuals
Insert
Insert actuals in different page
Create
Create a historic switch as in a corporate model because formulas are different in historic period from projected period.
Compute
Compute implied values from the historic data and adjust the closing balance of balance sheet accounts to move forward with new projected amounts.
Create accounts that have both historic and projected accounts.

17. Math of Reconciling Historic Assets and Debt
To reconcile assets, you can re-compute the S-curve and apply the new S-curve that sums to 100% the remaining assets.
If debt is derived, then the remaining equity can be computed.
On the other hand if the IRR is 5%, then the terminal value has a larger effect.
Math of Reconciling Historic Assets and Debt

18. Illustration of Revised Construction Expenditure
The actual and revised line (the blue lines) demonstrate how the forecasted construction expenditures are adjusted so that the total (underneath the integral of the lines) is the total EPC cost.

19. Formulas for Adjusting Construction Expenditures
Multiplied by
Original S-Curve
Divided by
TRUE/FALSE Switch
SUMPRODUCT of S-Curve over Projected Construction Period
Remaining Construction

20. Formula for Remaining Construction
Begin with Total EPC Cost
Subtract
Opening Balance of Work-in-Progress
Hold Constant in Last Historic Year

21. Historic Construction
The amount of construction expenditures during the historic actual period is the difference in the balance sheet of work in progress.
The future amount of work in progress is the prior balance plus projected construction.
Historic Construction

22. Example of Adjusted Construction Expenditure

23. Illustration of Debt Balance Adjustment
The actual and revised amount of debt draws are shown on the blue lines in two different assumed scenarios with respect to actual debt.
The projected debt is adjusted so that the total amount of the debt is

24. Formulas for Revised Debt Forecast
General Idea:
Compute the remaining funding needs from the total project cost less the accumulated funding that has already occurred
Compute the remaining debt funding as the debt commitment less the opening balance of the debt from the actual balance sheet
The debt funding as a percent of total funding needs is the remaining debt funding divided by the remaining total funding

25. Simple Example Illustration of Remaining Funding and Remaining Debt
This example demonstrates how the total funding and the remaining debt at the date after the end of the historic period.
The key is computing the adjusted debt percent.

26. Remaining Debt Funding and Remaining Funding
Remaining debt is the amount of the debt commitment computed in the summary sources and uses less the opening balance of the debt from the balance sheet.
Remaining debt is the total project cost less the amount already funded (where funding includes IDC, fees, DSRA and other items).
Circular references are a big deal in this calculation as the total project cost and the total debt commitment is driven by the debt size itself.

27. Formulas for Adjusting Debt Draws to Meet Debt to Capital Criteria
Illustration of the computation of debt funding percent after the historic period from remaining debt and remaining funding.