Leading Advisors in Project Finance

Aligning Contracts & Financial Model1 day course

Gain a first-principles understanding of how financial covenants should be defined in credit agreements.

This 1-day course explores the sometimes competing considerations that should be taken into account when defining financial covenants in project finance credit agreements. It explains the relationship between the credit agreement and the project’s financial model, and considers the consequences for the model of different approaches to drafting the principal ratios.

The typical delegate looks after the standard wording in the credit agreement that is used as a template for all deals; or needs to understand which divergences from the standard wording are acceptable and which to be resisted when transaction counterparties demand them. The course is also relevant to those whose responsibilities include issuing term sheets which specify ratio-based covenants.

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      In-house Courses

      This is a cost effective method of training participants from the one company, conducted on your chosen date, either at your premises or ours. Please get in touch for further details.

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      Course Details

      Full course program
        • CONTEXT
        • What a financial model is, and how it relates to the different project agreements
          • What a model looks like
          • The role a model plays in a transaction
          • How these properties have evolved over time
        • What a model produces
          • The different financial statements, and which one of them actually matters
          • Three things to ask the financial modeller for, to make the model useful
        • Defining DSCR, the Debt Service Cover Ratios
          • Using the cash flow statement to understand how the DSCR is built up
          • Current market practice in naming these components
          • The trade-offs involved in recognising revenues on a cash or accruals basis
          • The trade-offs involved in recognising costs on a cash or accruals basis
          • Treatment of debt fees
          • Treatment of cash balances and reserves
          • Comparing several real-world covenant definitions
        • Assessing debt cover over longer periods of time
          • The conceptual link from DSCR to ADSCR, Annual Debt Service Cover Ratio
          • The conceptual link from DSCR to LLCR, Loan Life Cover Ratio
          • Consequences for the correct discounting of LLCR
          • Pitfalls in defining PLCR, Project Life Cover Ratio
        • Assessing debt cover over shorter periods of time
          • Agreements should, but rarely do, define what happens in stub periods
          • Even if not anticipated in the base case, they can arise if the schedule slips
        • At bid: pricing a model
          • Why some models need pricing and others do not
          • Constraints that dictate the price
          • Sculpting debt
          • The consequences of different approaches to pricing for bid tactics: public and private sector perspectives
        • Model audit
          • Evolution
          • Process
          • The trade-offs inherent in different approaches
          • Representations
          • Should the procuring authority be an addressee of the opinion?
          • Opinion and reliance letters
        • The process for reaching financial close
          • Credit approval: Sensitivity analysis
          • Swaps
          • Gaps analysis
        • The need to provide for the replacement of the financial model
          • Operating/monitoring models
        • OTHER TOPICS
        • Payment mechanism
          • Timing of payments
          • Handling inflation
        • Consequences of move from GAAP to IFRS
        • Conclusion
        • A practical exercise building a simple model and using it to set a bid price

      Companies we train

      "A very informative session delivered clearly and concisely with humour by an extremely knowledgeable practitioner. A fantastic course. Thank you! "
      "This is a great course for anyone who wants a concise, yet detailed background to cover ratios in project finance."
      "The course provided a great insight into the often opaque logic behind the model and its interplay with the Credit Agreements."
      Osborne Clarke
      "As a lawyer, understanding the modelling impact of contract definitions and vice versa is crucial and this course has been very helpful in demystifying the model for a non-finance person."
      Hogan Lovells

      Jack Clarke+44 207 562 0477

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