Scope’s project finance methodology is an expected-loss methodology designed exclusively for the specifics of project finance. Our framework assumes that a project can be impaired, restructured and continued (as a going concern). We focus on the economic value of a project, which has significant advantages over methodologies based on probability of default, and is less sensitive to leverage due to the typical distribution of recovery rates in project finance. Click below to consult our methodologies.
We offer expanded analytical coverage of project finance risks that goes beyond probability of default. We consider five areas of risk that could result in credit losses to investors in a project. Each area can be associated with a few, idealised, credit-impairment events which represent the scenarios for which expected loss can be estimated. Scope pays equal attention to the severity of credit impairment events that may result in losses for investors, and offers an analysis of recovery rates.
We offer improved credit differentiation by discriminating between the severity of credit events. The decomposition of a project into several, mutually-exclusive credit-impairment events facilitates calculation of expected loss, which is the sum of each event’s contribution to total expected loss. This approach also provides valuable insight into the credit weakness or strength of a project.
Analytical transparency is maximised by identifying the areas of risk which contribute most to expected loss. We present project risk using a probability tree diagram that denotes the likelihood and severity of all credit-impairment events. This provides a simple, visual representation of a project’s sources of risk, thus empowering investors with valuable insight.
We ensure rating comparability by sharing Scope’s idealised benchmarks as defined for structured finance.
As well as producing annual Project and Infrastructure Finance and Aviation Finance Outlooks, Scope’s project finance team produces occasional research on topical themes, including on infrastructure sub-sectors and financing tools.Read our latest research
Scope’s team of project finance specialists is a culturally diverse team working in close alignment with analysts in Scope’s bank, corporate, structured finance and public-sector teams