Navigator project finance

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)

On Tuesday this week I had the pleasure of having a very pleasant chat with John Stroud from Digit Advisory. Digit Advisory is a partnership of two principals who are both ex Babcock and Brown and they are now (after an enviably long round-the-world trip) touring Sydney to broadcast their message of Digit Advisory - ‘Financial Modelling Expertise’. At a first glance one could be led to believe that Digit Advisory is a pure financial modelling specialist firm with investment banking expertise but I think that in the long term the strong skills of the principals in leading a transaction will turn out to be their biggest selling point.

For transactions that are not quite at the stage where they need to appoint a global investment bank for financial modelling and execution of the transaction Digit Advisory looks like a very sensible offering. I am yet to see one of their models but based on the high-level discussions I would like to think that Digit Advisory and Corality share a passion for simple, transparent and flexible financial models. I would recommend you to have a chat to John to find out more.

Ernst & Young financial modelling: London -> Sydney

John Stroud has interestingly enough a career path that is remarkably similar to my former colleague and business partner Nick Crawley at financial modelling consultancy Navigator Project Finance. Both joined Ernst & Young financial modelling in London and were subsequently sent to Sydney to boost the financial modelling capacity there. After joining from London they both left out of frustration within one year! John went to Babcock and Brown in Sydney and Nick to ANZ investment bank. Babcock and Brown are now a very quickly sinking ship and most people have moved on bigger and better things.

Hunter Street Sydney - Australian headquarter of financial modelling?

Digit Advisory have established their offices at 66 Hunter Street which further strengthens Hunter Street’s crowd of financial modelers. In the same building they have Bamford Partners (I haven’t met them yet but they appear to have a focus on financial modelling) and further down the street are Navigator Project Finance and Corality.

Recruiting financial modelers

Digit Advisory have big plans for growth and they are already looking to recruit two people to join the team. They are looking for people with about five years experience and who could comfortably work with and support top-tier investment banks with financial modelling, analysis and execution.

On a different note it appears that boutique financial modelling companies have survived the global financial crisis far better than then banking world. Corality have in July had three more people join the team and we are looking for one more Graduate to join in a few weeks. Navigator are also looking for two more Analysts and Financial Mechanics have also recently had a new joiner.

Long overdue, I finished reading Geraint Anderson’s ‘Cityboy’ today. It was recommended to me by Ken Ghata at Terrapinn over a Sydney lunch a couple of months ago when we were discussing the financial markets and the industry’s general behaviour in times of financial crisis. Thank’s Ken, it was well worth a read!

Review of Cityboy

In short, the book is about a UK hippie turned investment banker (utilities analyst) who develops a typical investment banking attitude to life (in all the bad ways!). It is a very amusing story with examples that will sounds very familiar to anyone who has been working in the industry.

www.cityboy.biz

Beer and loathing in the square mile

I certainly wouldn’t claim to be of Anderson’s caliber when it comes to cocaine, strip clubs and excessive bonuses, but I thought I could still share some examples of terrible behaviour from people who take their lives just a touch too seriously.

1. Financial modelling training for UBS - after hours

A couple of years back I was asked to prepare a proposal for financial modelling training for UBS. There was a tweak to the was the team leader wanted the training delivered because ‘all investment bankers were too busy to attend training during the day’ so they wanted to schedule financial modelling training classes from 8pm - 10pm on weekdays plus extra sessions on the weekend. Nice. I was actually relieved to hear that the team decided not to go ahead with the proposal..

2. Conference calls at 3am with Merrill Lynch

A few years back my team was working on a financial model for an Australian chemicals project with Merrill Lynch in New York arranging the funding. I couldn’t believe the attitude from the New York bankers when they requested a 3am conference call to discuss the model. What made it worse was that there was no element of a question in their request - they just took it for granted that we would be fine with it. Sure, I don’t mind the odd late night call, but I prefer to be asked about it!

3. Babcock and Brown - no love for financial modelling

We built a project financing model for a utilities project and Babcocks were brought in as a JV partner for the financing component. In the first meeting, they showed off a typical behaviour that is very typical of investment bankers’ attitudes to financial modellers. Since traditionally (in banks) financial models are often constructed by the most junior person on the team then there is a build in attitude that you should be arrogant and demanding towards the financial modeller.

Working with Navigator Project Finance at the time, the model had been constructed by people with +10 years of modelling experience and who had made financial modelling a career, and such an attitude to some of the most experienced financial modellers in the industry is just bad. Subsequently Babcock and Brown pulled out of the transaction, which wasn’t surprising at all given that their share price went into free fall and now they are pretty much gone.

If you haven’t read Cityboy already - get a copy and read it!

It is a well-known fact among financial modelling training companies that certain sectors of financial training benefit from economic slow-downs. The main reason for this counter-intuitive fact is that people are looking to polish their CV in case they would be made redundant.

Corporate financial modelling training is taking the biggest hit

Not surprisingly the upswing in individual training is offset by corporates and institutions reducing training budgets to cope with the threats of recession. With many of the banks on a zero training budget for 08/09 this will keep causing a lot of pain in the financial modelling training sector. The net effect for most financial training companies is a reduction in total participants, and the hardest hit are almost always companies catering for corporate clients with high fees and costly overheads.

How do you get a good deal on financial modelling training?

If you want to use the current environment as an excuse to get a better deal on financial modelling training then you should read this. There are a number of ways of getting more attractive pricing when organising financial modelling training and in combination they can be quite effective

• Have an open discussion with your training provider and ask them how you could bring the training fees down
• Register multiple participants
• Bundle up several training courses in one registration
• Use early-bird discounts where applicable
• Organise an in-house course (and provide catering, venue, printing, etc)
• Offer to work exclusively with one training course provider
• Ask for a last minute discount in the days before a course (just keep in mind that the best courses are often full due to the small group sizes)
• Find a smaller operator who can be more flexible on price
• Offer to provide testimonials or ‘success stories’ for marketing
• Wrap the training fees up with other consulting work (say you are using F1F9 for model builds, why not ask if they can give you a good deal on the training too?)
• Promise to recommend the course on LinkedIn, Facebook, your own website, etc (could be a tough one, but it’s worth a shot)

Universities market short courses in financial modelling

Many post-graduate universities offer short courses on financial modelling as part of their alumni and continuous learning programs. In Australia we have seen UTS Financial Modeling Certificate advertise frequently in the Australian Financial Review, and recently Macquarie Applied Finance have joined in.

Specialist modelling firms targeting individuals

Some of the smaller, niche training companies are now directly targeting individuals who are looking to prepare for a tougher job market. On the more aggressive end of the scale we have Financial Mechanics and Navigator Project Finance (including financial modelling in London) who both offer courses to individuals at 50% of the corporate rate. Fi-mech even made a big announcement about it, but Navigator seems to be quieter about this arrangement but they have also been reducing the fees for financial modelling training courses in London and Singapore.

Extract from Financial Mechanics newsletter, ‘The Swamp Fox’