Cost management and financial reporting after close

0:00 After close, the real work begins

Financial close feels like the finish line. It isn't. It's the start of a relationship with lenders, sponsors and often a public authority that may last twenty-five years, and that relationship runs on reporting. Every drawdown during construction needs evidence. Every test date in operations needs a compliance certificate. Every surprise costs credibility you'll need later, for a waiver, a consent or a refinancing. In this lecture you'll learn how construction drawdowns and the cost-to-complete test work, how the project controls toolkit applies to a project-financed asset, what operating reports and KPIs lenders expect, how to build a variance bridge, and how accounting views differ from the model. By the end, you'll be able to design a one-page quarterly lender report.

0:53 Why it matters

Why does this matter? During construction, lenders will stop funding if remaining sources don't cover the forecast cost to complete. So cost control isn't just good practice; it's a condition of getting paid. In operations, reporting is an information covenant: late or inconsistent reports can themselves be a breach. And there's a softer, but very real, point. Lenders are generally far more tolerant of problems disclosed early with a plan than of surprises found in the next compliance certificate. Consistent formats, on-time delivery and honest commentary build credibility, and that credibility is what you spend when you need a waiver, a consent for a change, or support for a refinancing.

1:41 The concept: the cost-to-complete test

During construction, funds are drawn in stages. Each drawdown request typically includes costs incurred and forecast by category, confirmation from the lenders' technical adviser that work is progressing and costs are appropriate, and a cost-to-complete test. Think of the test as checking the petrol before a long drive. Total available funding, meaning undrawn senior debt plus remaining committed equity plus remaining contingency, must be at least the forecast cost to complete. In the lesson's illustrative example, forecast remaining costs are one hundred and fifty-two million. Undrawn debt is one hundred and eighteen, remaining equity thirty, and remaining contingency nine. Total available: one hundred and fifty-seven. Headroom: five million. It passes, but it's tight, and a tight pass is a warning, not a comfort. If the test fails, sponsors may need to inject more equity before further draws.

2:41 Worked example one: a funding shortfall averted

Here's a realistic example from the lesson. A fictional waste-to-energy plant in the UK ran monthly cost-to-complete reviews. They showed that EPC claims for ground conditions could exceed the remaining contingency by about six million pounds. Crucially, the trend was spotted four months before the next major drawdown. That lead time made all the difference. The sponsors negotiated a partial settlement with the contractor, arranged a standby equity facility, and lenders agreed to continue funding with the enhanced support in place. Now imagine the same claims discovered in the week of the drawdown request. The funding test fails, draws stop, the contractor slows down, and every option is more expensive. This is exactly where the project controls toolkit, estimate at completion, claims logs and contingency against risk exposure, pays for itself.

3:38 The operating report set and KPIs

Once the asset is operating, lenders typically expect a regular set of reports. An operating report, quarterly or semi-annually: availability, output, incidents, maintenance and health and safety. Financial statements, semi-annual and annual, audited. A compliance certificate at each test date, with DSCR, LLCR, reserves and covenant compliance. An annual budget and operating plan covering opex, lifecycle and capex. An updated model, annually or on request, rolling forward actuals and updated assumptions. And an annual insurance report on renewals and claims. Across all of them, a consistent set of KPIs: CFADS against budget and against the lenders' base case, historic and projected DSCR, LLCR, opex per unit of output, availability and deductions, lifecycle spend against plan and the MRA balance, and equity distributions to date against plan. Keep the formats consistent quarter after quarter, so trends are obvious at a glance.

4:39 Worked example two: a CFADS variance bridge

In operations, the key analytical tool is the variance bridge. Say CFADS for the quarter is one point two million below budget, illustratively. Break it into buckets. Volume, because of lower wind resource: minus nought point nine. Price and indexation: plus nought point two. Availability, because of a gearbox outage: minus nought point four. Opex, from a higher insurance premium: minus nought point two. Working capital timing: plus nought point one. They sum to minus one point two. Now the key idea. Colour them by controllability. Wind resource and indexation are largely outside management's control. Availability and opex are within it. A lender reading this bridge immediately sees that most of the shortfall was weather, and that the controllable part, the gearbox outage, has an owner and an action. That's a very different conversation from 'CFADS was down'.

5:39 Watch me do it: a one-page lender report

Let me show you the one-page quarterly lender report I'd build for an operating asset. At the top, a KPI strip: availability, output against both P50 and P90, CFADS against budget and against the lenders' base case, and opex per unit, per megawatt hour, per bed or per kilometre. Next, the covenant box: historic and projected DSCR against lock-up and default levels, LLCR, and reserve balances against required levels. Then the variance bridge, coloured by controllability. And finally, commentary: three or four sentences covering what happened, why, what's being done, and who owns it. Before it goes out, three checks: figures reconcile to the locked model and the accounts, variances separate controllable from uncontrollable causes, and any forecast deterioration is disclosed with the actions being taken.

6:34 Accounting views and common mistakes

One more thing that confuses people: the accounts don't look like the model. Project companies prepare statutory accounts under standards such as IFRS or US GAAP, and several items are treated differently: capitalised interest during construction, depreciation, lease accounting, hedge accounting and, for certain concession arrangements under IFRS, the concession asset itself. That's fine, as long as you reconcile the model to the accounts periodically so everyone understands the differences. The common mistakes: drawdown requests unsupported by progress evidence; ignoring pending claims in the cost to complete; late or inconsistent compliance certificates; variance explanations that don't separate controllable and uncontrollable factors; and models not updated with actuals, drifting away from reality.

7:22 Recap and try this now

Let's recap. After close, reporting becomes the heartbeat of the project. During construction, every drawdown depends on evidence and a cost-to-complete test, so apply controls disciplines: estimate at completion by category, a claims log, and contingency against risk exposure, with trends spotted months ahead. In operations, report KPIs against budget and the lenders' base case, test covenants on historic and projected ratios, and explain variances with a bridge that separates controllable from uncontrollable causes. Reconcile to the model and the accounts, and disclose problems early with a plan. Your try-this-now: create a one-page quarterly lender report template for an operating asset, with KPIs, covenant tests, a variance bridge and a short commentary section.