Context
Project finance differs structurally from classic corporate lending: the source of repayment is not the company's existing operations but the cash flow the financed project will generate in future. Assessing such an exposure with a standard corporate rating model means asking the wrong question. The second problem was more widespread: the rating was calculated at origination and then stayed put. Even where the customer's balance sheet deteriorated or an adverse record appeared, the rating was not refreshed.
Approach
- The assessment score for specialised project finance exposures was separated from other rating models.
- A distinct assessment process for specialised lending was automated.
- Adverse record data was added to existing rating models as an additional parameter.
- Current balance sheet data was fed into the model so the rating updated over time — a living rating.
Outcome
- Project finance came to be assessed with a model matching its own risk logic.
- The rating stopped being a snapshot at origination and became a refreshed indicator.
- Adverse records reached the risk assessment faster.
- Monitoring units could see deterioration earlier through the rating itself.
This case study describes the project through its scope and approach. Client name, commercial figures and performance metrics are withheld under confidentiality obligations.
What This Project Left Behind
A risk indicator that is not refreshed is not an indicator but a record. Maturity is not the only thing that changes over a loan's life; so does the borrower's condition. The same principle applies when assessing a company's debt capacity: today's DSCR matters more than the DSCR on the day the loan was granted.
- Banking & Credit Process Advisory — Strategic advisory on restructuring distressed loans, financial analysis, negotiation preparation and process management with banks.