IBBC CAPITAL ACADEMY / 2027
Infrastructure: finance the project through its life
Independent IBBC Capital draft content for self-study. Not affiliated with or endorsed by CFA Institute. New lessons await subject-matter review. No CFA designation or official PSM credit is awarded.
Learning goals
- Diagnose the case using the stated constraints and quantitative evidence.
- Defend a conditional decision and identify what further evidence could reverse it.
Draft · approximately 65 minutes, excluding further revision.
Decision case · fictional facts
A contracted infrastructure project expects annual cash available for debt service 15 m and scheduled debt service 10 m. Stress operating costs reduce available cash to 12 m. A proposed construction-stage extension requires 30 m additional equity and has uncertain permits. The revenue contract expires in 12 years.
Revenue model before asset label
Regulated, availability-based, contracted and demand-based infrastructure have different volume, price, counterparty and political risks. Greenfield construction exposes permits, cost overruns and completion; operational brownfield projects have operating, refinancing and contract-renewal risks. An essential service is not automatically a low-risk investment.
Allocate construction and operating risks
Direct equity, debt, funds and public-private structures allocate control and risk differently. Project finance relies on contract cash flows and a priority waterfall; debt may have limited recourse. Diligence must test engineering, construction contractors, offtake, concessions, maintenance, insurance and legal enforceability. Senior debt protection does not remove completion or political risk.
Value within the contract horizon
Discount cash flows using risks consistent with construction or operating stage; do not assume a perpetual terminal value for a finite concession without justification. DSCR, loan-life coverage, reserve accounts and covenant tests help assess debt capacity. Compare equity upside with capital calls and loss under downside scenarios; diversification and inflation linkage depend on contracts, not the infrastructure label.
Choose infrastructure vehicles by exposure and governance
A direct project stake offers targeted control but requires technical and legal resources. A pooled infrastructure fund delegates selection and can diversify projects while adding fees and manager dependence. Debt and equity occupy different priority positions, and public-private contractual structures allocate demand, availability and political risks specifically. Read the underlying agreement rather than equating public involvement with a guarantee.
Formula and assumptions
DSCR=CFADS/debt service;project value=PV(contractual and justified residual cash flows)
Compare with the model response after drafting
- Base DSCR=15/10=1.5 x; stress=12/10=1.2 x. The additional 30 m is a new funding commitment, not financed by the existing 1.5 x ratio.
- Evaluate permit and completion milestones before extension approval; model the twelve-year expiration and refinancing separately.
Errors to catch
- Assuming essential demand guarantees equity returns.
Write, compare, then self-assess
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Original knowledge check
Answer every question before checking. Review explanations after submitting; retry starts a new attempt.
Sources and coverage status
These original lessons are drafts. Public outlines are used to check scope; the official learning-outcome text and proprietary question banks are not reproduced here. Follow the source for exam-year requirements and updates.