How to Map a Project-Finance Structure, Step by Step

Map a project financing by putting the vehicle in the middle and drawing every counterparty as a line into it, then writing on each line what that party gives and what it can reach. For Tapti Crossing Infrastructure Private Limited that is one crossing, sponsors who put in Rs 540 crore, project lenders who put in Rs 1,260 crore, a granting authority, and the accounts the cash passes through.

What is this sheet for, and what does it already rest on?

An analyst handed a financing is asked to put it on one sheet. Not a memorandum, not a model, one sheet that somebody can look at for thirty seconds and come away knowing who is exposed to what. The sheet is worth doing properly. Of everything produced on a financing, the sheet is the artefact that travels. The model stays with the person who built it. The sheet gets photographed, pasted into a note, put on a screen in a meeting, and read by people who will never open anything longer.

Three things are settled before the drawing starts, and each is covered separately. The first is that a project financing has one special purpose vehicleA company formed to do exactly one thing and hold exactly one asset, with no trading history and no other business behind it. at its heart, with no claim running beyond it. The second is that a reader can already read a revenue line, an operating cost line and a balance of borrowings, so nothing on the sheet needs an accounting explanation. The third is the structure of the project itself: Tapti Crossing Infrastructure Private Limited was built for Rs 1,800 crore, funded with Rs 1,260 crore of debt and Rs 540 crore of equity. The three figures are locked.

Here is the everyday version, worth holding on to for every step below. A cousin borrows to open a shop. The lender lends against the shop. One question follows: if the shop fails, can the lender come to the household home? If a relative signed as a guarantor, yes. If nobody signed, no. The two situations produce exactly the same list of names, the same shop and the same lender, and the two arrangements are completely different. A picture that shows only the names has left out the fact a reader most needs. A structure map exists to carry the second half of that answer on the face of the drawing.

So the sheet is not a picture of who is involved. The sheet is a picture of how far each claim travels. Everything in the procedure below is in service of that one property, and the property has a name: recourseThe further claim a lender has if the thing lent against is not enough. Full recourse reaches the borrower's other assets; no recourse stops at the asset itself.. Reach is the property separating a project financing from an ordinary corporate borrowing, a comparison covered separately, and the map is where that property gets written down instead of remembered.

What is the procedure, in order?

Eight steps. The order is not decoration and it is not a stylistic preference. Two of the steps decide what the later steps are even allowed to write down, and a sheet built out of order tends to acquire a shape that contradicts its own contents. Run them as written, and finish each one before starting the next.

1. Put the vehicle in the middle and write what it holdsOne asset, and the statement that there is no other business. Nothing else goes in the centre.
   Checking: is the thing in the middle the thing every claim on this sheet lands on?
2. Draw the sponsors and write two things on the lineWhat went in, and what was not promised. Both, in that order, on the same line.
   Checking: would this line look different if somebody had signed a guarantee?
3. Draw the granting authority and the right it grantedThe right, named, with the arrow pointing towards the vehicle rather than away from it.
   Checking: does the arrow direction match what actually moves between these two?
4. Draw the project lenders and write the reach of the claimWhat went in, what the claim covers, and where the claim stops.
   Checking: is the reach written on the sheet, or is it sitting in the drafter's head?
5. List the contracts around the vehicle, one line eachConstruction, operation and upkeep, and anything that fixes demand or price. One line, naming who bears what.
   Checking: has any contract been given a second line?
6. Locate the accounts and mark where the order will goThe box, and its position between the money arriving and the money leaving. Not the order itself.
   Checking: does the cash on this sheet pass through something, or does it teleport?
7. Write the figures at the foot, each with its base and its periodCost, funding, cash and cover. No figure travels alone.
   Checking: could somebody copy any figure here and get it right without asking the drafter a question?
8. Mark every box the record cannot fillA symbol that means unknown. Never a blank, and never an estimate.
   Checking: does every gap on this sheet look like a decision rather than an omission?

Step one: what goes in the middle, and why does the choice matter?

The middle of the sheet is a claim about the arrangement itself, and that claim is made before a single number has been written. Tapti Crossing Infrastructure Private Limited goes there. Inside the box goes one crossing. The second half goes in beside it: the vehicle has no other business and no second source of cash.

Every claim drawn on this sheet is a claim against the centre, so the vehicle goes in the centre. Put a sponsor in the middle and the sheet reproduces exactly the mental picture the structure was built to prevent. The whole argument is that one sentence, and it is worth sitting with. The alternative feels natural. The sponsors did start the project and put the first money in. In almost every other chart a reader has ever seen, the person who started the thing sits at the top. Which is precisely the problem: the reader brings that habit with them.

Two words earn their place inside the centre box. One crossing, and no other business. The first tells a reader what the cash comes from. The second closes off a question a reader will otherwise answer alone. Is there something else in there that could pay if the crossing does not? There is not. A sponsorA party that puts equity into a project vehicle and usually takes a hand in getting it built and run. What a sponsor promises beyond that equity varies and must be read, not assumed. in this arrangement holds shares in a company with one asset, and that is the entire extent of what stands behind the debt.

Think of a food stall that has been set up as its own little enterprise, separate from the household that runs it. If the stall borrows for a new fryer and the loan is made only against the stall, the lender's claim ends at the stall. Draw the household above the stall on a chart and every reader will assume the household is behind the loan. Draw the stall in the middle with the lender as a line into it. The drawing has already said where the claim stops, so nobody assumes anything.

Step two: how does the map record what the sponsors did not promise?

Two things go on the sponsors' line, and most people write only the first. The first is what went in: Rs 540 crore of equity, being 30.0 per cent of the Rs 1,800 crore the crossing cost. The second is what did not go in: no further claim on the sponsors, and nothing standing behind the debt beyond the vehicle itself.

A map that records only the money looks exactly the same whether or not somebody signed a guarantee, so the second half is written on the line rather than assumed. A reader given a line that says only Rs 540 crore reads a number, registers that the sponsors are committed, and moves on carrying an impression they were never given. Asked afterwards whether the sponsors stand behind the borrowing, most would say something vague and lean towards yes. A committed party normally means exactly that.

Write it as an absence and the ambiguity is gone. Rs 540 crore in, and no recourse beyond the project. Nine words on a line, and the sheet now answers the single question every reader of it eventually asks. The trade is a good one.

The map does not explain what a sponsor undertakes during construction, what support might be given if a completion test is missed, or what happens if the sponsors want to sell their shares. Every one of those is real and every one of them is covered separately. The map records that the equity went in and the claim stops; the arrangements around that are somebody else's line of work.

One practical warning. If the record in hand does show a sponsor undertaking of some kind, that undertaking becomes its own line with its own reach written on it, and it does not get folded into the equity line. Two different promises, two different lines. For Tapti Crossing Infrastructure Private Limited the record carries neither an undertaking nor a guarantee, so the line reads exactly as written above.

Step three: how does the map record the authority and the right it granted?

The third line is the one people draw wrongly most often, and they draw it wrongly because of an instinct rather than a mistake of fact. The granting authorityThe public body that awards the right to build and operate an asset such as a crossing. Named here by role only, because this record does not name one. is a public body, and a public body in a diagram tends to get drawn above everything, with an arrow pointing down. The downward arrow says supervision. A right moved, not supervision.

So draw the authority as one more party on the edge of the sheet, and draw its line pointing inward, the same way the sponsors' line and the lenders' line point inward. Write on it what was granted: the right to build, operate and collect. The right to build, operate and collect is the reason the crossing has any revenue at all. Without it there is no toll to collect and no cash for anything else on the sheet to reach.

The authority gives the vehicle something rather than lending it something, so the authority's line points inward. A party like that belongs on the sheet as the source of the revenue rather than as a claim on it. The distinction survives every version of this structure. A party that hands over a right is a source; a party that hands over money and expects it back is a claim. Only the second kind has a reach to write down.

The content of the granted right, its length, the conditions attached to it and what happens at the end of it all belong to the concessionThe right, granted by a public body, to build and operate something and to collect from the people who use it, for a set period. It is covered separately. , covered separately. None of that goes on the map. The map names the right and nothing more. One line, and the reader who wants more knows where to look.

The everyday version: a municipality lets a vendor run a stall in a market for a period. The permission is what makes the stall a business. The municipality granted something rather than lending it. Nobody draws the municipality as a creditor of the stall. If the vendor later has to pay the municipality a fee, that is a second and separate thing, and on this record for Tapti Crossing Infrastructure Private Limited there is no such payment written down, so nothing is drawn going back.

Step four: how far does the lenders' claim actually reach?

Rs 1,260 crore in, being 70.0 per cent of the Rs 1,800 crore cost. A claim over what the vehicle holds. And nothing beyond it. Three clauses, one line, and the third clause is the one that makes this a project financing at all.

The same lender on a different financing has a different reach, so reach is a property of the line and not of the party. Reach belongs written on the sheet rather than recalled about the institution. Experienced people trip up here, not beginners. Somebody who has dealt with a particular lender for years carries an impression of how that lender lends, and that impression is a summary of a hundred other transactions. The impression has no authority over this financing. The agreement struck on this financing governs, and what was agreed is on the line or it is nowhere.

Put it beside an ordinary corporate borrowing and the contrast is sharp. Harivansh Packaging Limited carries Rs 740 crore of borrowings against a business making Rs 3,180 crore of revenue from packaging sold to many customers. A lender to Harivansh Packaging has a claim on a whole trading business: its factories, its receivables, its cash, whatever it earns next year from a product line not yet launched. A lender to Tapti Crossing Infrastructure Private Limited has a claim on one crossing and the cash that crossing collects. Same word, lender, and two entirely different positions. The position has to be drawn rather than named.

There is a small discipline that keeps this honest. Write the reach as a boundary, not as a description. The lenders have security over the project sounds complete and settles nothing. The wording that works is the lenders can reach what the vehicle holds and nothing beyond it. The first phrasing describes what they have. The second phrasing says where it stops. Only the second is useful to a reader who is trying to work out their own exposure.

The lenders' requirements in return for accepting that boundary, the tests they set and what happens if a test is missed all belong to project lending, covered separately. None of it goes on the map. The map records the reach, and the reach is a fact about the arrangement rather than a summary of the agreement.

Step five: how does the map list the contracts without explaining them?

Around the vehicle sits a ring of contracts, and the ring is where every risk in the project was placed before a single load of material arrived on site. Somebody agreed to build the crossing for a price. Somebody agreed to keep it open and maintained. Somewhere there may be an arrangement that fixes what the crossing collects, or there may not be. Each of those gets one line, and the line names who bears what.

For Tapti Crossing Infrastructure Private Limited the ring has three slots. The construction contract, on which the builder bears cost overrun and delay in completion. The operation and maintenance contractThe agreement under which somebody runs and maintains the asset once it is built, usually for a fee, and takes on stated obligations about keeping it available., on which the operator bears upkeep and keeping the crossing open. And the demand contractAny agreement that fixes in advance how much of the output is taken, or at what price. A road with a toll usually has none, because it collects from whoever turns up. slot. For this project the slot is drawn and left empty. A crossing with a toll collects from whoever crosses, and this record contains no agreement fixing that.

One line per contract, with no mechanism. A step that starts explaining a contract has taken on work that belongs elsewhere, and it has quietly turned the sheet into an essay. The discipline sounds fussy until the alternative is watched in practice. Somebody writes three sentences on how the construction contract allocates delay. The subject is genuinely interesting and they know it well. Now the sheet has one contract with a paragraph and two with a line each, and every reader concludes that the first one matters three times as much. The sheet was never meant to say that. The weighting is an accident of who wrote it.

The empty slot deserves a word of its own. Leaving it out entirely would be the easier choice and the wrong one. Draw the box, label it, and mark it. A reader who sees a drawn and empty demand slot learns something real: this project takes whatever the crossing collects, with no arrangement underneath it holding the revenue up. A reader who sees no demand box at all learns nothing, and is quite likely to assume there is one somewhere.

A wedding makes the same point. There is a hall, a cook, a decorator and somebody doing the lights. A plan listing those four names records who was hired. A plan that also says the cook bears the cost if the food is late and the hall bears nothing records where the trouble will land. Same four names, and only one of the two plans is any use on the day.

Step six: where do the accounts sit, and how much of them goes on?

Cash from the crossing does not travel from the toll booth to the lenders and the sponsors by magic. The cash lands somewhere, sits somewhere, and leaves in an order somebody agreed in advance. The place it sits is the account structureThe set of bank accounts a project vehicle collects into and pays out of, arranged so that money moves between them in a fixed order rather than at anyone's discretion., and it goes on the map as a box positioned between the money arriving and every line that reaches for it.

The box and its position go on. The order does not. A map with no account box shows who signed. A map with the box shows how the money moves, and only the second is worth drawing. A sheet drawn without the box shows the crossing's collections as available to whoever gets to them first. A project financing arranges the opposite.

So the sheet carries three slots, or however many the record supports, each marked with the symbol standing for unknown. Collections, operating, reserve. Underneath, in words, goes the statement that the order through them is set by the debt service work and is not settled on this sheet. The sentence does two jobs: it tells the reader the order exists, and it tells the reader the omission is known rather than accidental.

The temptation here is to fill it in. A drafter may well know roughly how such an order runs, and the sheet would look more finished with numbered slots. The temptation is refused for the same reason as writing a concession length the record does not give. A numbered order on this sheet is a claim about this financing, and this record does not carry one. Debt service, covered separately, computes what actually goes out and in what sequence, and that is where the numbers get attached to the slots.

One household comparison. The shape is genuinely familiar. A salary lands in one account. A standing instruction moves the loan payment out on a fixed date before anything else is spent. The remainder goes to the running account. The household has an order, and the order is the reason the loan gets paid in a month where the spending was heavy. A project vehicle does the same thing with more accounts and a written agreement instead of an intention.

Step seven: what figures belong at the foot, and on what bases?

Now the numbers, and there are fewer of them than might be expected. Four things belong at the foot of this sheet: what it cost, how it was funded, what it earns in the year that has been modelled, and how that year's cash compares with that year's obligations. Each one carries a baseWhat a figure is measured on or divided by. A ratio without its base is two numbers with the relationship between them deleted. and a periodThe stretch of time a figure covers. A single modelled year is a period; the life of a project is a different period and needs its own figure., written beside it and not left to be inferred.

Recompute all of it rather than copying it. The cost is Rs 1,800 crore. The funding is Rs 1,260 crore of debt and Rs 540 crore of equity. The two sum back to Rs 1,800 crore and split 70.0 per cent to 30.0 per cent. The cash is revenue of Rs 310 crore less operating cost of Rs 62 crore, giving earnings before interest, tax, depreciation and amortisation (EBITDA) of Rs 248 crore, an 80.0 per cent margin that is ordinary for a road and would be remarkable in most other businesses. Debt service is interest of Rs 119.70 crore, being the project's own contracted 9.5 per cent on Rs 1,260 crore, plus scheduled principal of Rs 63 crore, giving Rs 182.70 crore. Cover is Rs 248 crore over Rs 182.70 crore, or 1.36 times.

A figure at the foot of a map with no base and no period beside it will be lifted into somebody else's note within a week. The figure will arrive there meaning something it never meant here. The 1.36 times is the one most at risk. A bare ratio is the easiest thing in the world to copy. Somebody sees it, writes it down, and by the third retelling it has become a description of the project rather than a reading of one year of it. Writing EBITDA over debt service, in the modelled year, is the whole of the defence, and it costs eight words.

Notice the limits on 1.36 times. The ratio does not say the project is comfortable, or tight, or well structured. The ratio says that in the one modelled year, the cash covers the obligations with room to spare. About any other year it says nothing whatever, and this record carries no schedule beyond that year.

Step eight: how does the map mark a box the record cannot fill?

The last step is the one that separates a sheet somebody can hand on from a sheet somebody has to explain in person. Every box the record could not fill is found again on the drawing and marked with a symbol that means unknown. A blank is never left, and a blank is never filled with something plausible.

For Tapti Crossing Infrastructure Private Limited there are four. The length of the right granted: this record does not carry a concession period. The tenor of the debt: this record does not carry one either, so the Rs 63 crore of scheduled principal cannot be turned into a repayment profile. The traffic behind the Rs 310 crore of revenue: there is no forecast in this record, so nobody knows what volume and what toll produce that figure. And the schedule after the modelled year: the record models one year and one year only.

A blank box reads as a box nobody got to. A marked box reads as a question somebody asked and could not answer, and that is the entire difference between an unfinished map and a finished one. The information content of the two sheets is identical. The message is not. One says the work is in progress. The other says the work is done and here is exactly what is missing, and a sheet like that is much more useful to hand somebody.

There is a third option that is worse than either, and it is the tempting one: estimating. A plausible period, a plausible tenor, a traffic number that reconciles to Rs 310 crore. The option is never taken. An invented figure on a clean sheet is indistinguishable from a real one, and within a week somebody will quote it back as though it came from the record. Marking the box costs one symbol and protects everybody downstream from a number that never existed.

What does the finished sheet look like for this crossing?

The eight steps together produce this. In the centre, Tapti Crossing Infrastructure Private Limited, holding one crossing and no other business. Around it, four lines. The sponsors put in Rs 540 crore and can reach what is left once the project lenders are paid. The granting authority gave the right to build, operate and collect, and on this record reaches nothing. The project lenders put in Rs 1,260 crore and can reach what the vehicle holds and nothing beyond it. The contract ring holds construction, operation and upkeep, and a demand slot drawn empty.

Below the lines sits the account structure, drawn as a box with its slots marked and the order through them noted as belonging elsewhere. At the foot sit the six figures with their bases and periods. And in four places sits a mark meaning the record does not answer this.

Then run the check that finishes the sheet, and run it out loud if there is nobody in earshot. Read every line as a sentence of the form this party gives that and can reach this. The project lenders put in Rs 1,260 crore and can reach only what Tapti Crossing Infrastructure Private Limited holds. That works. The sponsors put in Rs 540 crore and can reach what is left once the lenders are paid. The second line works too. If a line cannot be read that way, it is not yet a line: it is a name sitting in a box, and it will mislead the next person who looks at it.

The test catches more than might be expected. The check catches boxes with no arrow, and arrows with a party at one end and nothing written on them. The check also catches the party who was in the papers but neither gives nor reaches anything. Most usefully, it catches the line where the drafter knows the reach perfectly well and has not written it down. The person checking is the person who already knows, and the defect survives every other check.

Why does the wrong shape mislead a reader who knows better?

The sheet fails in one particular way far more often than any other, and it fails while every fact on it is correct. Somebody draws the structure as an organisation chart. Sponsors at the top. The vehicle underneath them. The lenders off to one side with a line coming in. Every box is right. The picture is wrong.

The picture is wrong because a chart shaped that way means something in every other place a reader has met one. A chart shaped that way means the box at the top controls and stands behind the box below. An organisation chart says that, a shareholding chart says that, and a reader does not switch off twenty years of that habit because this particular drawing is about a road. The shape carries a message and the message contradicts the arrangement.