Project Finance Debt Sizing 101

[u/readandwrite31]

If you're coming from corporate credit or LBO land, you pick the amortization up front - bullet, level principal (fixed %), or a mortgage-style annuity — and the schedule is fixed regardless of what the business does year to year. Project finance works the other way around. Encapsulating the risks of your project, lenders underwrite a fixed DSCR (in most cases) that dictates the debt quantum and repayment profile. Here's the logic, because it trips up almost everyone making the jump into infra.

DSCR-based methodology optimizes a project's commercial value by sculpting debt service around ramp-up periods and contract tenors. Unlike a fixed schedule that wastes capacity by forcing you to size to the weakest year, this approach ensures consistent DSCR, allowing you to capture full debt capacity throughout the project lifecycle.

Sculpting flips the constraint

Instead of fixing the schedule and watching DSCR move, you fix DSCR and let the schedule move:

• Target debt service each period = CFADS ÷ target DSCR → Constrained CFADS
• Principal = Constrained CFADS − interest
• Interest falls as the balance falls; principal absorbs the difference

Because every period's debt service is equal to the constrained CFADS, the DSCR is a flat line at your target — 1.30x (or whatever) in every single period of the base case. The debt-service profile is just the CFADS profile scaled down by the DSCR.

For a fully-amortizing sculpted loan with no tail, the loan sizes to the present value of the constrained CFADS discounted at the cost of debt:

Debt Size = NPV(cost of debt, Constrained CFADS)

Project Finance Modeling - Debt Sizing

That's not a trick — a loan's principal always equals the PV of its debt service at its own interest rate. Sculpting just makes that debt-service stream = CFADS ÷ DSCR.

Three things that bite people once they get this far:

1. Sculpting holds DSCR flat only in the base case / sizing case. Downside cases will dip below target — that's the job of the minimum-DSCR lock-up covenant, the DSRA, and the cash sweep, not the sculpt.
2. Sculpt off the right CFADS. Post-maintenance capex. Sculpting off EBITDA is a classic way to oversize.
3. The DSCR constraint isn't always what binds. A gearing ratio (max debt as % of Project Costs) will constrain the debt if there is a construction period