Structuring, Sizing and Underwriting Infrastructure Deals — Two Deals Modeled End to End, With the Models Supplied
Julian R. Sterling
These are the two Excel workbooks that go with the book. They are the files every figure in it
came from. Northgate is a 96 MW data center, built to suit and let for fifteen
years on a triple-net lease: it costs 614.4 million to build and
657.4 million to fund, carries 427.3 million of senior debt,
and earns a year-one net operating income of 61.61 million, which is a yield on
cost of 9.37 per cent on the funding requirement and
10.03 per cent on the building alone. Its equity returns
16.60 per cent, of which only 2.41 points come from exit yield
compression, and its rent can fall 43.2 per cent before cover reaches
1.000 times. Aurora is 220 MW of solar with 80 MW of storage, contracted for
fifteen years and merchant for ten more: it costs 468.5 million to build,
against 242.9 million of debt and a 249.5 million equity check,
and it is in the book because it does not work. With a thirty per cent investment tax credit it
returns 5.59 per cent to equity. Without one it returns
2.68 per cent at the project level and 0.13 per cent to
equity, and needs a power price of 105.14 a megawatt-hour to reach ten per cent
where the subsidized deal needs 67.31. Change any input and every dependent
figure moves, because nothing in either file is pasted.
Free to download. No sign-up, no email address, nothing to fill in.
Everything described below is inside it, with the read-me.
The two workbooks
Chapters 5, 7, 8, 14, 15 and 16, and Appendix A
Northgate — the data center
Ninety-six megawatts of IT capacity at 6.4 million a megawatt, let at
56.00 a kilowatt a month on a fifteen-year triple-net lease indexed at
2.5 per cent, against 2.9 million a year of non-recoverable cost. The loan
is the lower of two tests, both performed on the face of the sheet: a
1.45 times cover test on year-one net operating income, and a
65 per cent loan-to-cost test that exists precisely because it distrusts
the forecast the first one believes. The sheet names which of the two binds rather than
leaving the reader to infer it, and it amortizes on a twenty-five year profile over a
fifteen-year term, so the balloon that falls due in the month the only lease expires is
printed rather than buried.
The funding table is circular by construction, since the loan sizes off a cost that
includes the cost of the loan. It is not solved by iteration. The Solve
sheet unrolls the loop one pass per column with a cell that reads CONVERGED, which is why
the file behaves identically wherever it is opened. Interest during construction is charged
on the whole drawn balance, arrangement fee and debt service reserve included, because both
are drawn on the first day and carried for the whole build: that correction alone moved
2.8 million through the loan, the installment, the cover ratio, the balloon
and the return. The equity return is computed with the construction period inside it. Set
the exit cap rate equal to the yield on cost and the answer becomes what carry and
indexation alone produce. Set the stress switch to YES and the debt stops re-sizing itself,
which is the whole difference between a sensitivity and a stress case.
Northgate_Model.xlsx · XLSX · 19 KB · 8 sheets
Chapters 6, 10, 11 and 15, and Appendix B
Aurora — the solar and storage project
Two hundred and twenty megawatts alternating current of solar with eighty megawatts and
three hundred and twenty megawatt-hours of storage, sold under a fifteen-year power purchase
agreement and then into the market for ten more. Debt is sculpted to the cash flow rather
than leveled, which is what a resource that varies year to year requires and what a lease
does not. The base case is a P50 resource at a
28.5 per cent capacity factor and 549,252 megawatt-hours.
Holding the loan fixed at the 242.9 million actually signed and running the
resource down its own distribution, a P99 year at
483,727 megawatt-hours takes minimum cover from
1.350 to 1.202 times and the equity return from
5.59 to 3.06 per cent.
The input that decides the answer is the investment tax credit, and it is a cell rather than
a footnote. Set it to zero and the deal returns 0.13 per cent to equity,
which is the most useful thing in the file and the reason the deal is in the book at all.
The terminal value is a cell too: the base case gives the plant no residual value in year
twenty-five, which is conservative and is the first thing a reader ought to argue with. Put
a multiple in and watch what it is worth. At eight times final-year cash flow available for
debt service the return is still nowhere near ten per cent, which is why the finding
survives the objection, and why the objection is printed instead of avoided.
Aurora_Model.xlsx · XLSX · 18 KB · 7 sheets
Conventions used throughout
Blue text
an input: change it and everything recomputes
Black text
a formula: do not overtype these
Grey text
a note
Solve sheet
the funding loop, unrolled one pass per column, with a cell that reads CONVERGED once the passes stop moving
Stress switch
on Northgate’s assumptions sheet: NO re-sizes the loan to the new case, YES holds it at the 427.3 million actually signed
There are no macros, no external links, no protection and no circular references anywhere, and
nothing is locked or watermarked. The files behave identically in Excel, LibreOffice and Google
Sheets, whether or not iterative calculation is switched on.
Why there is no circular reference
Project finance models are circular by nature: the loan is sized off a cost that includes the
interest and fees on the loan. The usual remedy is to switch on iterative calculation and let
the spreadsheet settle. These files do not do that, for a reason worth knowing.
With iteration enabled, a spreadsheet can display cells from different passes at the
same time. Measured on an early version of these very models: a debt service of 37.18
shown on one sheet where the model had computed 39.77 on another. A model built to demonstrate
that arithmetic should be visible cannot itself hide a number that depends on which order the
cells happened to settle in.
The loop is therefore unrolled. One pass per column on the Solve sheet, each
column taking the previous column’s loan and recomputing the cost, the interest during
construction, the fee and the loan again. Three passes are enough on both deals, and a check
cell reads CONVERGED when the last two agree. The reader watches the loop close instead of
taking it on trust.
Three reviews, eight corrections
These models were reviewed three times before publication and failed all three. Eight errors in
all, and not one of them was a typing mistake: every one produced a plausible number. They are
set out in Chapter 14 because they are the ordinary errors rather than exotic ones, and because
there is no useful version of a book about model review that pretends its own arithmetic was
immaculate.
The largest moved the headline. An equity return computed with no construction period in it
reported 19.09 per cent where the corrected model reports
16.60, an overstatement of 2.49 points produced entirely by
putting the equity in at time zero and the first rent one year later on a twenty-four month
build. The second review found that this same correction had been applied to one model and not
to the other, which is the commonest way a correction fails and the reason the workbooks are
worth more than the text: a reader who does not believe a number can put their own assumption in
and watch what happens to the rest.
Opening the files
The workbooks open in Microsoft Excel, LibreOffice Calc, Google Sheets and Numbers. They use no
macros and no add-ins, so nothing needs to be enabled or trusted. If your spreadsheet asks to
update links on opening, decline, because there are none. Northgate and Aurora are illustrative
models built for a book: they are not investment advice, and not a representation about any real
asset or transaction.
Also by Julian R. Sterling
The other books with companion files. The full list of titles is on the
author page.
Credit AnalysisOne borrower, four defensible EBITDAs, and the add-back argument worth fifty times the covenant headroom.
Closing the DealTwo defensible bridges 20.70 million apart, a peg worth 7.00 million, and the six choices that remove 6.60 of a 12.00 earn-out.
CMBS and CRE CLOsWhere the loss actually lands, from appraisal reduction to realised severity, and what the B-piece is really being paid for.
How to Read a Commercial LeaseThe three refinements chapter 19 names and never performs, and the renewal rate below which the mark-to-market is worth nothing.
How to Read a Credit AgreementWhere the default actually comes from, the cure that costs 5.5 times the other, and the capacity nobody adds up.
How to Read a Real Estate Loan AgreementThe cure ratio in closed form, the four-point window in which the cheap cure works, and the cure sized to the wrong threshold.
Office Real EstateA six per cent yield that returns 3.2 per cent once the re-letting cycle is paid for, and the headline-to-net-effective rent arithmetic.
Private Equity Real EstateBoth worked waterfalls to the dollar, the two capital stacks, and the arithmetic of the promote made changeable.
Private Markets PerformanceThirty-one of the thirty-three figures chapter 19 publishes reproduce exactly — and the two that do not are named rather than quietly adopted.
Raising a Real Estate FundThe chapter 17 funnel run on a calendar — when the first close actually lands, and why more travel does not help.
Real Estate FinanceFour people look at one building and reach four numbers; the lender is whole only above 105,109,489, twelve per cent below today’s value rather than forty.
Real Estate Financial ModelingProperty, development and fund models built line by line, and the modelling test worked end to end.
Real Estate Fund ManagementThe waterfall of 6.11, the build-to-core of 8.7 and the proceeds gap, reproduced as live formulas rather than asserted.
REIT Analysis and ValuationFFO of 532.0, AFFO of 381.0, net asset value and dividend safety — every figure a formula you can change.
Retail Real EstateThe occupancy cost of every unit in a centre, the sixteen per cent of the rent roll no tenant can sustain, and the right-size-convert-or-hold decision priced.
Sale and LeasebackA €179.5 million transaction end to end, with rent cover measured on the entity that actually signs the lease.
Self-Storage Real EstateThe cohort engine behind a 590-unit store, and the rate increase on existing customers priced against the move-outs it causes.
The Fund Finance ProfessionalChapter 8 builds the reported-to-eligible NAV bridge; chapter 9 computes every ratio without it. Two points at every state — and what a subscription line does to the IRR.
The Growth Equity InvestorWhat a pro rata cheque really costs, and the band where defending your ownership loses money.
The Private Credit InvestorThe two coverage ratios are not measured on the same thing: the erosion is 47.7 per cent, not the 28.7 the headline implies.
The Private Equity Fund Controller PlaybookThe book defines IRR, DPI, RVPI and TVPI, tells you to update them at the exit, and prints not one value. Computed: a 1.833× deal inside a fund at 0.892 TVPI.
The Venture Capital AssociateWhat defending a position costs, and how many companies a reserve pool actually defends.
Financial Risk ManagementA fund inside every limit that cannot meet a redemption — and the number that decides it is the one with no currency attached.
Business ValuationThree advisers land 26.8 per cent apart on one company, and the whole gap turns out to be 1.96 points of perpetual growth.
Quantitative FinanceThree models agree to a quarter of one per cent about a number that one unobservable input moves a hundred and three times as much.
Asset ManagementFour people quote four returns for one mandate, all correct and 2.7017 points apart — forty-eight times the manager’s net skill.
Alternative InvestmentsA manager reports 13.29 per cent and the endowment earns 6.26 — both correct, and only a third of the advertised advantage arrives.
Venture CapitalOne company out of twenty-eight returns 56.7 per cent of the fund, and half the capital goes in after the decision — at half the return.
Machine Learning for FinanceFive people quote the accuracy of one credit model, all five are right, and the number that decides how much money it makes is none of them.
Commercial Real Estate InvestingThe equity earned 8.6647 per cent and the investor received exactly 8.0000 — the preferred return, and nothing above it.
Mergers and AcquisitionsThe board paper says the deal creates 13,436,667 of value. The arithmetic says it destroys 17,530,855. Nobody is lying.
DerivativesThe treasury report says the hedge cost 1,233,698. That is the interest differential, not a cost.
Treasury ManagementFive cash balances for one company, all correct and 145,600,000 apart — and the revolver that is two-thirds of the liquidity leaves at a revenue fall of 8.4127 per cent.
Financial Planning and AnalysisRevenue 3.0190 per cent above budget and operating profit 16.3209 per cent below it, in the same quarter, with every figure correctly stated.
Energy TradingA position report that is 91.7031 per cent hedged and correctly computed, on a book that is short 2,542,000 MWh — and a margin call of 198,400,000 the next morning.
Construction Cost ControlA contract sum of 26,301,102 became a final account of 29,153,363 on the building that was drawn — and 85.8 per cent of what was lost was knowable on the day it was signed.
Trade FinanceSix routes to payment on one 4,200,000 export order cost between 178,040 and 223,268, a spread worth 14.8 per cent of the margin, and a day of buyer credit costs 1,031.76.
Cost AccountingOne factory costed twice on the same 13,440,000 of overhead, and 4,053,091 moves between four product families.