Capital structure optimization

Client

US-based electric utility firm

• The client requested Crisil's support to transform manual capital structuring to a real-time automated process 
• Its requirement included strict constraints related to credit metrics and market dynamics

• The team created an algorithm for two-way optimization of capital structure considering the constraints related to credit metrics and market components
• This algorithm was concise to migrate and integrate with the main corporate model 
• With the board targeting to avoid undue pressure on repayments, a roll-over process was set up to optimize the amortization schedule
• A revolver credit facility was established that would be activated in case of any negative cash flows in the short term
• The algorithm was sequential in nature and considered the minimum of multiple cash flow metrics relevant to the industry
• Market mapping of competitors was conducted to create the base of the financing mix framework and upcoming capital expenditure plans 
  

• Crisil’s capital structure optimization algorithm helped to transform the model into a more robust and practical one
• The utility firm’s tax shield savings rose 3-4%; WACC also improved 
• Turnaround time was reduced to less than a minute with this new algorithm
• With the absence of manual intervention, data accuracy improved
• Provisions were made to add any new constraint or angle of analysis within the algorithm