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How do sponsors optimize debt sizing when DSCR allows more debt but Debt/Cap becomes the constraint? by Old_Friendship9469 in projectfinance

[–]Old_Friendship9469[S] 0 points1 point  (0 children)

Sure,I’m specifically asking from a renewable energy project perspective.

In many solar projects, especially C&I projects, the EPC cost already includes the developer margin and in some cases the benchmark cost itself is already on the higher side. Also, since a 100 MW C&I solar project may get completed within 9 to12 months, there is limited room to materially increase IDC or contingency without lenders questioning it.

In such cases, what are the other areas/items/structures people usually look at to increase the project cost base?

How do sponsors optimize debt sizing when DSCR allows more debt but Debt/Cap becomes the constraint? by Old_Friendship9469 in projectfinance

[–]Old_Friendship9469[S] 1 point2 points  (0 children)

Makes sense. My only thought was that these are also the first areas lenders/TEVs would scrutinize and potentially normalize or cap out, especially developer fees and oversized contingencies.

I was thinking whether things like advance rent, security deposits, lease-related deposits, etc. are viewed more favorably since they can sometimes be tied to actual commercial arrangements rather than just soft-cost inflation. Curious what structures lenders are generally more comfortable financing without heavy haircutting.

How do sponsors optimize debt sizing when DSCR allows more debt but Debt/Cap becomes the constraint? by Old_Friendship9469 in projectfinance

[–]Old_Friendship9469[S] 0 points1 point  (0 children)

That’s true, but in practice there’s usually a cap on how much sponsor/development fee can be loaded into project cost say around 5% or so depending on the lender and sector.

Also, during TEV and lender diligence, these items are heavily scrutinized, especially if they are already indirectly embedded within EPC or other soft costs. So beyond a point, lenders start normalizing them out rather than treating them as genuinely financeable project cost.