Financial Modeling: Debt Sizing & Sculpting in Project Finance

In this video, I make another attempt to explain the important and complex topic of debt sizing and debt sculpting in project finance modeling. I start by reading a debt sizing clause from a real term sheet and discuss why lenders impose a minimum DSCR limit and a debt-to-capital ratio limit. I also explain DSCR in terms of cash buffer. Then, I switch to Excel and walk through a simplified case study with one tranche of debt. I show a case where the minimum DSCR is the debt sizing limit and explore the sculpting possibilities in that scenario. Next, I switch to a new base case to show how a project can benefit from debt sculpting when the debt-to-capital ratio is the constraint. Finally, I demonstrate why sculpting is inevitable in cash flow profiles with high seasonality.