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Note N.02 · Structuring · 2026

The last five years decide the case.

Ten-year PPA, fifteen-year debt. Five years of repayment depend on market revenue. The model needs to make that exposure visible.

The transition to market revenue

A fifteen-year loan against a ten-year PPA leaves five years of debt service after the contract ends. Those years combine older equipment with market prices and the remaining repayment schedule. Review them as a distinct period.

A lower debt balance does not, by itself, guarantee higher DSCR: coverage depends on cash flow and the interest and principal due in each period. After the PPA expires, price assumptions change the cash-flow forecast. Their uncertainty should be explicit.

The structural question

How do sizing, reserves, cash sweeps and covenant terms account for the market period? A flat covenant threshold alone does not answer that question.

Structural answers

What a structurer reaches for

  • A cash sweep through the uncontracted period, so the tail amortises faster than the schedule requires
  • A stepped-up target DSCR after the PPA ends, so the merchant years are sized on their own risk
  • An enlarged debt service reserve, funded before the contract expires rather than after
  • Size debt against a defined downside case for the uncontracted period and compare the funding requirement

A debt term beyond the contract can be a deliberate financing choice. Compare these mechanisms against the project’s cash flow, funding needs and agreed terms.

The ratio that measures a tailshow the working
LLCR = [ NPV(CFADS to loan maturity) + eligible reserves ] ÷ debt outstanding PLCR = [ NPV(CFADS to end of project life) + eligible reserves ] ÷ debt outstanding PLCR ÷ LLCR compares value over these two horizons. Near 1.0, the model assigns little additional discounted cash flow beyond loan maturity. This does not mean the asset stops generating revenue. Use consistent valuation dates, discount rates and reserve definitions.

Reference definitions: World Bank · Project finance coverage ratios.

Modelling it

How to make the tail visible

  • Mark the contract end date on every ratio chart, always
  • Run the merchant price sensitivity separately from the general revenue sensitivity
  • Report minimum coverage for the contracted period and the tail as two figures, never one average

That last point is the cheapest improvement available to most models. A single minimum does not show where in the term the risk is concentrated. Two numbers cost nothing to produce and immediately change what people ask about.

For solar assets, distinguish the average market price from the price captured during generation hours. Test the capture assumption separately from the general price curve: both can affect revenue in the uncontracted period.

Reporting the tail honestlyshow the working
Contracted period: min DSCR, average DSCR, headroom to covenant Tail period: min DSCR, average DSCR, headroom to covenant + capture rate assumption, stated separately from the price curve + breach probability across price paths + the merchant price at which min DSCR = covenant That last figure is the breakeven price. It converts an argument about forecasts into one question anyone in the room can answer: do we believe the price stays above this?
Next step

Send the tail

The structure and the price curve you are using. The breakeven price is usually a same-week answer.

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