Project Finance

What is Project Finance?

• Definition – “Project Finance” and a comparison of the key differences between project finance and corporate finance
• Origins of project finance
• Who uses project finance and why?
• Review of the market – size, industry sectors, geography and trends
• Defaults and recovery statistics
• What is the downside? – slow, complex, expensive etc.
• Core learning themes - sponsor, cash & IMAAA

Sponsors and Lenders / The Lender’s Risk Analysis

• Different risk/reward objectives of sponsors and lenders – who gets the upside when a project goes well
• Balancing equity and debt

Qualitative Risk Assessment and Mitigation

• The Sponsor – competence, creditworthiness & potential conflicts of interest
• The country and the institutional framework
• Construction & technology risk - how financiers manage construction risk
• Offtake – the nature of the offtake contract and the impact of volatility and the impacts on debt structuring
• The risk position and cashflow security of the offtaker
• upply and resource availability
• Operation and maintenance regimes
• Environmental provisions and the overall regulatory regime
• Insurance & Force Majeure provisions

Quantitative Risk Assessment and Debt Structuring

• How the cashflow models are developed and the range of inputs
• The use of Lenders Advisors in finalising the inputs and the financial model
• How debt capacity is used as a risk mitigation tool for lenders
• The measurement tools used by Lenders
  • ADSCR, LLCR & PLCR
• The repayment schedule
  • Straight line or annuity or a sculpted profile
• How the cashflow is used to
  • size the debt capacity of the project
  • the repayment profiles
  • the amount of equity required to fully fund the project
• Sensitivity analysis
• Choosing/calibrating sensitivities
• Financing risks
  • Interest, inflation, foreign exchange
• Funding risks
  • certainty of funding
  • equity & debt

Project Financing Documentation

• The term-sheet
  • purpose, legal status, binding/non-binding aspects
• Term-sheet/documentation provisions
  • purpose clause
  • interest/fees
  • repayment/prepayment
  • representations and warranties
  • covenants/undertakings
  • conditions precedent
  • security
  • control accounts/waterfalls
  • events of defa

The Project Finance Process

• The players and their interests
• Role of advisers
  • financial advisers
  • technical advisers/consultants
  • legal counsel
• The financial feasibility study/debt structuring
• The information memorandum
• Debt underwriting/syndication
• Financial close
• Post-close monitoring

Other Sources of Debt Finance and Risk Mitigation

• The bond markets
• Credit enhancement through guarantees
• Private political risk insurance market
• Export credit agencies
• Multilateral agencies/development banks
• Sponsor co-financing

Sustainable Lending – The Equator Principles

• Origins and purpose of the equator principles
• Development and current adherents
• Purpose and scope
  • best practice in sustainable lending
  • bank obligations
  • project classification under the equator principles
• Practical application using examples

Power Project Finance

Industry background and the role of the System Operator, matching the supply of electrical energy and the demand