What a Credit Committee Actually Does With Your Project Report

The Committee Never Reads the Document You Submitted

A borrower prepares a project report, submits it, and waits. What happens next is almost never what the borrower imagines. The document is not circulated to the committee. It is received by a credit officer — frequently junior, always carrying several files at once — whose task is to read it, test it, and write a shorter document about it. That shorter document is the appraisal note, and it is what the committee actually reads. The project report sits in the annexure, available to anyone who wants it, consulted by almost nobody unless the note has raised a question that sends them back to it.

This single structural fact governs everything else. The borrower's document is written to persuade; the appraisal note is written to be defended. The credit officer who signs it will be asked, possibly years later, why they recommended a facility that went bad, and their protection is that they identified the risks and stated them. That incentive runs in the opposite direction to the borrower's. A report which anticipates it — which surfaces its own weak points and shows how they were tested — makes the officer's note easier to write and, counter-intuitively, makes the proposal more likely to pass. A report that buries them makes the officer look for what is missing, and an officer who is looking will find something.

This article sets out how a credit proposal is actually assessed inside a scheduled commercial bank or a consortium of lenders: the order the committee reads in, how the appraisal note differs from the borrower's document and why the difference matters, why debt service cover is tested as a minimum across the tenor rather than as an average, what the security package and the covenant schedule are really being asked, what separates a proposal that is returned for more information from one that is declined outright, and what changes when several lenders must agree. None of it is confidential and none of it is proprietary. It is how the work is done, and where our transaction advisory practice prepares a report for a lender audience, it is the structure the document is built to survive.

A Credit Paper Is Read Backwards From Repayment

Borrowers write forward: the promoter, the company, the market, the opportunity, the project, the cost, the funding, the returns. Credit reads backwards. The first question in the room is not what the business does; it is how the money comes back, and from where, and what happens if it does not. Everything else is context for that question. A document sequenced as an investment story asks the committee to hold seven pages of background before it reaches the only thing it came for, and in practice the reader simply jumps — which means the background is skimmed on the way past rather than read on the way in.

The consequence is not that the story sections are unnecessary. It is that they are being read in a different order and for a different purpose than the borrower intended. The market section is not read to establish that the market is attractive. It is read, after the cash flow has been seen, to test whether the revenue line in that cash flow is supported — and it is read specifically for the sentence that says where the volume assumption came from. A market section of four pages that never states the basis of the volume assumption has failed at the only job it was actually given, however well it describes the sector.

The practical implication for anyone preparing the document is that each section should be written to answer the question it will be read for, not the question its title implies. In the mandates our advisers run, a project report intended for a lender is structured so that the repayment case is stated early and each subsequent section visibly supports one element of it. That is not a presentational preference. It is an alignment between the document and the reading, and where the two align, the queries that come back are about substance rather than about locating things.

Your Document Becomes Someone Else's Summary, and the Summary Is What Decides

The appraisal note is a different genre from the project report, written by a different person with a different incentive, and understanding that difference is the most useful single thing a borrower can know. Where the project report advances a case, the note assesses one. Where the report presents assumptions, the note attributes them — "the borrower states", "management projects", "the promoter has represented" — and that attribution is doing real work. It marks the boundary between what the bank has satisfied itself of and what it has been told, and a note in which almost every substantive figure is attributed to the borrower is a note that has quietly said the file is unverified.

The note also has a section the borrower's document generally lacks: a statement of risks and mitigants, written as a list. This is the officer's protection and the committee's agenda. Whatever appears in that list will be discussed; whatever does not appear will not. A borrower who has left an obvious risk unaddressed does not thereby avoid it — the officer identifies it, states it in their own words, and characterises the mitigant as absent. A borrower who has addressed it supplies the officer with a mitigant to record, in language the borrower chose. The risk appears in both versions of the note. Only one of them contains an answer.

There is a further consequence which is easy to underestimate. The note is short, and it is written under time pressure by someone reading several files. Anything in the project report that is genuinely important but hard to extract will not make the transition. A crucial contract, an offtake arrangement, a completed regulatory approval, a technical certification — if it is described in a paragraph on page sixty rather than stated plainly where the relevant test is being answered, it may simply not reach the committee. Our advisers place each supporting fact adjacent to the assertion it supports for exactly this reason: the test is not whether the document contains the evidence, but whether the evidence survives being summarised by someone who has forty minutes.

The register of the note is worth noticing too. It is flat, declarative and unenthusiastic, and it treats adjectives as noise. A borrower's document written in promotional language does not translate into that register; it has to be rewritten, and in rewriting it the officer decides what the claims actually amount to once the adjectives are removed. That is a decision the borrower has handed over. A report already written in the register of the note — plain, sourced, quantified — passes through with its meaning intact, because there is nothing to strip out.

The Cover That Matters Is the Worst Year, Not the Average One

Debt service coverage is the ratio of cash available for debt service to the debt service falling due, and it is the single most examined figure in a credit proposal. It is also the figure most often presented in a form that cannot be assessed. A borrower's summary states a cover of, say, 1.6x. A credit officer wants to know 1.6x of what — the first year, the average, the year the moratorium ends, or the worst year in the schedule — because those are four different numbers and only one of them is the test.

The reason the minimum governs is not a convention. It is arithmetic about survival. A facility is not repaid on average; it is repaid on a schedule, and a year in which cash available falls short of the instalment due is a default in that year regardless of how comfortable the surrounding years look. An average conceals precisely the year that decides the outcome. A profile with strong cover in years four through eight and thin cover in year two has an average that reads well and a year two that is the entire risk of the facility.

The shape of the profile also carries information the ratio alone does not. Cover that starts thin and improves describes a project ramping to capacity, and the risk is concentrated in the early years where the borrower has least operating history to point to. Cover that starts strong and deteriorates describes something else entirely — a contract expiring, an input cost escalating, competition arriving — and a committee reads a declining profile as a question about the tenor rather than about the amount. Cover that is flat and adequate throughout is the least common and the most easily approved, because there is no year that needs a separate explanation.

Where our financial due diligence team rebuilds a borrower's model for a lender-facing report, the schedule is presented year by year with the minimum identified and the year it falls in named, before any average is mentioned at all. That ordering is deliberate. Leading with the average and disclosing the minimum later reads, to an experienced credit reader, as an attempt to anchor on the flattering figure — and it invites a rebuild of the model rather than an assessment of it. Leading with the minimum, and then explaining what happens in that year and why it is survivable, keeps the borrower in control of the analysis.

The other half of the same discipline is the definition of what sits on top of the ratio. Cash available for debt service is not profit, and it is not EBITDA. It is the cash the business actually has after tax, after the working capital the growth in the projection requires, and after any maintenance capital expenditure the asset cannot operate without. Each of those is a deduction a borrower has an incentive to omit and a credit officer has an obligation to reinstate. A cover ratio computed on EBITDA and presented without stating what was deducted will be recomputed by the reader on their own definition, and the recomputed figure is the one that goes in the note.

Security Is Valued for the Day the Business Has Already Failed

Security is the second way out, and it is assessed on the assumption that the first way out did not work. That assumption governs everything about how the security section is read. A valuation prepared on a going-concern basis describes what the asset is worth to an operating business; security is realised precisely when there is no operating business, in a market that knows why the asset is for sale, on a timescale set by a recovery process rather than by a seller. The gap between those two figures is not a haircut applied for conservatism. It is the difference between two genuinely different questions, and a security section that answers the first while claiming to answer the second is the most common substantive weakness in an otherwise competent proposal.

The composition of the package matters as much as its stated value. Specialised plant with a single realistic class of buyer realises very differently from general-purpose land and buildings; receivables are worth what remains collectable once the customer relationship has broken; inventory in a distressed sale rarely realises anything close to carrying value. Personal guarantees from promoters carry weight in proportion to the assets actually behind them and the practical ease of enforcement, both of which are questions the committee will ask and which the document can answer in advance. Our valuation team prepares security valuations on the basis the security is actually realised on, and states the basis explicitly on the page, because an unstated basis is read as the more favourable one and then discounted accordingly.

Covenants are the third element, and they are misread by borrowers more often than either of the others. A covenant is not a penalty and it is not primarily a constraint on how the business is run. It is an early-warning instrument: a trigger that brings the borrower back to the table while the facility is still performing, at a point where the lender still has options. That is why covenant levels are set with reference to the base case rather than to the point of distress — a covenant that only breaks when the business is already failing has given the lender nothing it did not already have.

Which means the covenant schedule is worth negotiating on the same terms it was designed on. A borrower who accepts a tight covenant to secure approval has bought approval with future flexibility, and the currency is expensive: a technical breach in a year that is otherwise fine consumes management time, triggers a waiver process, may reprice the facility and appears on the file permanently. A borrower who understands that the lender wants an early signal rather than a tripwire can frequently negotiate a level that provides the signal without producing breaches during ordinary volatility. Where we act for a borrower, the covenant levels are tested against the same downside sensitivities the credit case was assessed on, so the question is answered with the model rather than argued in the abstract.

The interaction between the two is where the real exposure sits. A security package sized against a facility, and a covenant set against a base case, are both individually reasonable and can still combine badly: a covenant that trips in a moderate downside forces a renegotiation at exactly the moment the security has lost most of its realisable value. Testing the two together — what is the security actually worth in the state of the world where the covenant breaks — is a short exercise and it is the one that most often changes how a facility is structured.

A Returned File Is a Process Failure; a Rejected One Is a Credit Failure

Borrowers tend to treat any outcome short of approval as the same outcome. Lenders do not. A proposal returned for further information and a proposal declined on credit grounds are different events with different causes and, importantly, different remedies. Confusing them leads borrowers to fix the wrong thing — to strengthen a case that was never weak, or to resubmit an unchanged file that was declined for a reason no amount of additional information addresses.

A return is a documentation and evidence failure. The committee could not assess the proposal, so it did not. The commonest triggers are mundane: an assumption with no stated source, a projection that does not reconcile to the audited accounts it claims to build from, a statutory approval described as being in process without a date, a security valuation on the wrong basis, a group exposure that surfaced from the bank's own records rather than from the file. Each of those is fixable, and none of them is a judgement about the project. But each costs a full cycle, and cycles are expensive in ways borrowers systematically underestimate — a delayed sanction moves the drawdown, the drawdown moves commissioning, and commissioning moves the first year of the cash flow the whole case was built on.

A rejection is a judgement. The committee understood the proposal and concluded that the risk is not one the institution wants at the price and structure offered. The causes are structural: cover that does not hold in the downside at any sensible amount, a sector the institution has decided to reduce exposure to, a promoter or group history that cannot be got past, a repayment case that depends on a single counterparty or a single approval, security that does not cover the exposure on a realisable basis. More information does not change any of those. What changes them is a different structure — a smaller facility, a longer tenor, more promoter contribution, additional security, a different lender class altogether.

The distinction is worth establishing explicitly, because the language a bank uses does not always make it obvious and a returned file and a declined one can arrive in similarly worded correspondence. Asking directly which of the two occurred — and, if it was a return, exactly which items are outstanding — is a legitimate question and one credit officers generally answer plainly. In the mandates our advisers run, that question is asked before anything is redrafted, because redrafting a file that was declined on structure produces a better-written document with the identical outcome.

When Several Lenders Must Agree, the Document Has to Survive Every One of Them

A facility large enough to require several lenders changes the problem in a way that is not simply additive. The document is now read by several credit teams, in several institutions, under several credit policies, each producing its own appraisal note for its own committee. A lead lender typically arranges the facility and conducts the primary appraisal, but participation is a decision each institution takes for itself — and a participant who is not comfortable does not negotiate, they decline to participate, which leaves the lead with an unfunded portion and the borrower with a problem that has nothing to do with the merits.

The practical consequence is that the document must satisfy the most conservative reader in the group rather than the average one. A treatment that the lead accepts and one participant does not is a treatment that fails, because the participant's alternative to arguing is simply to withdraw. This is the opposite of a negotiation, where positions converge; here the binding constraint is set by whoever is strictest, and the borrower rarely knows in advance which institution that will be or on which point.

Sequencing compounds it. Queries arrive from different institutions at different times, and an answer given to one lender in correspondence does not automatically reach the others. Where the answer materially changes an assumption, a version problem develops: institutions are now appraising different cases while believing they are appraising the same one, and the discrepancy surfaces late, at documentation, when it is most expensive. In the mandates our advisers run on consortium facilities, every substantive query response is issued to all participants and folded back into a single controlled version of the document, because the alternative is discovering at signing that two lenders sanctioned different projects. Across a network of 80+ specialist consultants working in 22 countries, that failure is common enough to design against rather than to react to.

The lead lender's own position is worth understanding, since borrowers frequently mistake it for neutrality. The lead has arranged the facility, has usually taken the largest ticket, and has a reputational stake in the participants being satisfied — which makes the lead an ally on process and a demanding counterparty on substance. A lead who anticipates a participant's objection will raise it themselves, early and firmly, rather than allow it to emerge at the participant's committee. A borrower who reads that as the lead becoming difficult has misread it: the lead is running the participants' likely objections in advance, which is the most useful thing they can do.

Inter-creditor questions add a further layer that has no analogue in a bilateral facility. Ranking of security between lenders, the mechanics of decisions requiring unanimity as against a majority, the treatment of a waiver sought from a group rather than from one institution — these are matters between the lenders, but they shape what any of them can agree to, and they routinely determine the timetable. A borrower who has understood that the consortium is also negotiating with itself will schedule accordingly and will stop reading silence as disinterest.

Build the Schedule and Watch the Minimum Separate From the Average

The instrument below builds a level-annuity amortisation across the tenor and computes cover in every year of it. It reports the minimum, the year the minimum falls in, and — separately and more quietly — the average, because the two are different figures and only one of them is the sizing test.

The readouts worth watching are the gap between the two and where the minimum actually falls. Because principal is deferred through the moratorium and then retired over fewer years, debt service steps up the moment the moratorium ends — so the minimum lands in the first year after it, not in year one. That is the profile the worked example above describes, and it is the reason a cover ratio quoted without a year attached tells a credit officer almost nothing.

Three structural levers move it. Lengthening the tenor lowers the instalment and lifts every year; lengthening the moratorium defers the step into a year where cash flow is stronger, but compresses amortisation into fewer years and raises the instalment when it arrives; raising the interest rate does the reverse of both. Watching which lever moves the minimum year — rather than which one moves the average — is the whole of the exercise.

Write for the Officer Who Has to Defend the Recommendation

Everything above reduces to a single reorientation. The reader who decides the outcome of a credit proposal is not the committee; it is the credit officer who writes the note the committee reads, and that officer is not looking to be persuaded. They are looking to establish what they can state as verified, what they must attribute to the borrower, and what they will have to defend if the facility does not perform. A document that makes each of those three easy to determine is a document that gets recommended, because it has done the officer's work rather than asked them to do the borrower's.

In practice that means a small number of habits, none of which requires additional analysis. Sourcing every material assumption on the page where it is used rather than in an annexure. Presenting cover as a schedule with the minimum named before any average appears. Valuing security on the basis it is actually realised on, and saying which basis that is. Publishing a downside severe enough that the reader does not feel the need to construct their own. Listing the risks the officer will list anyway, with whatever mitigant genuinely exists, and saying plainly where none does. Where our transaction advisory practice prepares a report for a lender audience, those are not stylistic choices; they are the structure, and each of them exists because of how the document is read rather than how it is written.

The wider point is that none of this is adversarial. A credit officer and a competent borrower want the same thing — a facility that performs — and the officer's scepticism is a professional obligation rather than a posture. A borrower who has genuinely tested their own case will find that the questions coming back are the questions they already answered, and the process becomes an exchange of evidence rather than a contest of framings. Where our advisers act for a borrower, that is the outcome the preparation is aimed at, and it is the reason these positions are offered as observations about the mechanism rather than as technique: they are drawn from work delivered by a network of 80+ specialist consultants across 22 countries, and they are available to anyone willing to apply them without instructing anybody at all.