Project Underwriting is a formal process during which an investor (project sponsor) analyzes risks and uncertainties related to a given project for sponsorship opportunities to determine if there is a technically feasible and economically reasonable foundation for making investments in the project. It aims to prove project feasibility and authorize financial resources for investing in project development and implementation.
The process of underwriting a typical project reaches the following goals:
- Give the rationale for project investment
- Develop a cash-flow model of the project
- Perform a financial assumption analysis
- Make recommendations on project structuring and organization
A sponsoring organization that wants to invest in some project needs to have supporting documentation to underwrite the project and ensure this project is feasible. The following key documents should be available for that organization to support the project:
- Preliminary risk assessment
- Feasibility study
- Project financial forecast or cash-flow model
- Shareholder/non-shareholder loans and guaranties
- Government permits/licenses
- Purchase agreements
- All other applicable documents that support the project for initiation.