Advanced Project Financing

Transcription

1 Advanced Project Financing Structuring Risk Second Edition Richard Tinsley Contents P r e f a c e t o 2 n d E d i t i o n P r e f a c e t o 1 s t E d i t i o n A u t h o r b i o g r a p h y L i s t o f c a s e s t u d i e s L i s t o f e x h i b i t s I n t r o d u c t i o n Project Finance s origins Project Finance defined Project-Finance structuring Off balance sheet (OBS) 1. Deconsolidation 2. Portfolios 3. Defeasance 4. Non-recourse 5. Completion test and option conditions 6. Limited recourse Advantages Capital shortage Risk transfer Deal sequestration Ratings management Securitised Project Financings Better [equity] returns Consortium control Tailoring Covenant busting Flexibility

2 Workouts Privacy Project validation Simple arithmetic Disadvantages Documentation Extra cost Too long Lender control Higher insurance costs Higher legal bills Greater Risk to lenders Recourse Chapter 1: Structuring stages Technical feasibility stage Financial feasibility stage Market feasibility stage Approach to banks Approach to bond underwriters Board paper Takeout (re)financing Piercing the sovereign ceiling Use in mergers and acquisitions Equity/mezzanine Project concept C h a p t e r 2 : F u n d i n g S o u r c e s Local-currency funding Banks Bilateral Agencies Multilaterals 1. PRI Developers Mezzanine Merchant financing Islamic lending Public-private partnerships (PPPs) Leasing Commodity-based lending Equity C h a p t e r 3 : C a s h f l o w s Modelling aspects Interest bases Spreads Reserve Styles Cashflow controls Operations summary Operating

3 Gross revenues Opex Financing reports Financing costs Capex Modelling Approaches Typical sensitivities Liquidated damages (LDs) Model periodicity Input sheet Model shortcomings C h a p t e r 4 : Advantages and disadvantages Need for an adviser Advisory costs Who are the Financial Advisers? C h a p t e r 5 : Debt Service Cover Ratio (DSCR) Residual/Tail Interest Cover Ratio (ICR) Principal Cover Ratio (PCR) Present value (PV) ratios Loan Life Ratio (LLR) Project Life Ratio (PLR) Residual Life Ratio (RLR) Debt:Equity ratio (D:E) Payback Discount rate Leveraged IRR Choice of discount rate Multi-tranche ratios Accounting ratios Telecoms C h a p t e r 6 : Insurance Statistical Risk modellers Benchmark Checklist Contractual/Jigsaw Project Finance F i n a n c i a l A d v i s e r s C r e d i t R a t i o s R i s k S y s t e m s

4 C h a p t e r 7 : S e c t o r P r o f i l e s Sector features Analysis by sector Power Tollways Railways Resources Telecoms Satellites Prisons/hospitals Airports/ports Water [supply]/waste water [sewage] Stadiums/theme parks C h a p t e r 8 : S t r u c t u r e s Risk 1. Contract 2. Trigger 3. Financed 4. Studied 5. Risk division Document matrix Interest Principal Drawdown styles 1. Certification 2. Benchmarks 3. Anticipated-cost-to-complete 4. Up-Front -- banks 5. Up-Front -- bonds SPV Company Unincorporated joint venture (UJV) Partnership Trusts Mezzanine Subordinated debt Working capital Bridge loans Multi-tranche Commodity funding

5 Supplier credits Buyer credits Pre-export financing 1. Prepayment 2. Advanced payment Leasing 1. Leveraged leasing 2. Wrap lease 3. [Bermuda] Captives 4. Double-dip 5. Hire purchase 6. Lease tranches Deferral 1. Inverse order of maturity 2. Current order of maturity 3. Banked deferral Clawback Mandatory prepayments Equity kickers Financed structures Equity 1. Dividend reserve 2. Subordinated debt 3. Convertible debt/initial public offering (IPO) Securitisation 1. Collateralised loan obligation (CLO) 2. Revenues Joint financing Study structure Ratings 1. Methodology 2. Default 3. Deal Pricing 4. Covenants 5. Terms 6. Pricing Off balance sheet (OBS) 1. Deconsolidation 2. Diamond 3. Defeasance 4. Derivatives 5. Puts/calls/indemnities 6. Comfort letters

6 C h a p t e r 9 : Systematic review The feasibility process Selection of experts/engineers Customary reviews Traffic studies Construction cost audit Power Resources Telecoms subscriber studies Common sense D u e d i l i g e n c e C h a p t e r 1 0 : S u p p l y R i s k Supply agreements Supply undertakings Tolling contracts Supply assurance Insurance Hedging Financed structures Collateral Study structures Supply studies 1. Traffic 2. Telecoms 3. Water 4. Oil and gas 5. Mining 6. Power 7. Processing Weighting 1. Borrowing base [Reserve-based lending] 2. Physical tail 3. Depletion protection C h a p t e r 1 1 : M a r k e t R i s k Market-price Sales contracts Take-or-pay Capacity [availability] contracts Throughput agreements Buy-back contracts Minimum-quantity contracts Market-preference contract Requirements contract Tolling agreements Advanced sales contracts Production payments Contract monetisation

7 Market-price hedging Contract base pricing Additional sales contract options Force majeure Priority Capacity [availability] charges Trading-company Customer Trigger situations Hedging Contract-for-differences (CFD) Make-up/deficiency agreements Insurances Study techniques Market forecasts C h a p t e r 1 2 : What percentage to structure? Forward contracts Parallel loans Barter [countertrade] Currency swap Exchange rate agreements Study Purchasing-power parity Exchange rate forecasts Natural hedge Commodity lending CPI lending FX tariff C h a p t e r 1 3 : Technology management Quality assurance Technology guarantee Fleet assurance [shared spares] Business interruption insurance Technology insurance Financed structure Performance bond Study structures Independent certification Alternative technology Technology curve F o r e i g n E x c h a n g e ( F X ) R i s k O p e r a t i n g R i s k T e c h n i c a l c o m p o n e n t

8 C h a p t e r 1 4 : Cost guarantee Sales contracts Economic test Financed structures Cost subordination Study structure Cost curves Waiver C h a p t e r 1 5 : Management contract Labour contracts Training agreements Key-person insurances Study Personal screen O p e r a t i n g R i s k C o s t c o m p o n e n t O p e r a t i n g R i s k M a n a g e m e n t c o m p o n e n t C h a p t e r 1 6 : Emissions Catastrophe Contextual Contamination Sustainability Environmental management Rehabilitation management Rehabilitation release Emergency response Environmental warranty Environmental insurances Financed structures Rehabilitation guarantee Pollution-control bonds Rehabilitation reserve Study Environmental impact Statement (EIS) Environmental plan Equator compliance Regulatory waiver Physical waiver Regulatory purchase/trade 1. sulphur 2. carbon E n v i r o n m e n t a l R i s k

9 C h a p t e r 1 7 : I n f r a s t r u c t u r e R i s k Infrastructure contract Government commitments Pooled infrastructure agreements Financial Structure Tax-fee status Studies Transport [freight] studies f.o.b offtake C h a p t e r 1 8 : Acts of nature Acts of man(kind) Acts of government Impersonal acts Deferral Insurance Negotiation Studies Risk Manager Safety measures F o r c e M a j e u r e R i s k C h a p t e r 1 9 : C o m p l e t i o n R i s k Completion test (Type 1) Turnkey Construction Contract (TCC) (Type 2) Multi-party contracts Partnering charters/alliance contracting Liquidated damages (LDs) Delay-in-startup (DIS/DSU) 1. Force majeure 2. Change of a law 3. Efficacy 4. General provision Financed structures Default agreement Bonding/guarantees 1. Retention 2. Performance bonds 3. Maintenance bond Completion guarantee Completion undertaking Overrun-standby facilities Debt:Equity subscription

10 Study approach Independent completion engineer Completion tests Sector completion protocols Tollroads/bridges Rail/light rail Ports/airports Prisons/hospitals Water supply/sewage treatment Power Telecoms Oil and gas Mining C h a p t e r 2 0 : Design/calculations Trigger structure Insurance Study Independent certification E n g i n e e r i n g R i s k C h a p t e r 2 1 : P o l i t i c a l R i s k Definitions 1. War and insurrection (W&I) 2. Currency inconvertibility and transfer (CIT) 3. Expropriation and creeping expropriation a. Regulatory creep b. Financial creep c. Physical creep 4. Landowner/indigenous peoples disturbances 5. Terrorism and sabotage 6. Wilful breach of contract/deprivation 7. Change of government 8. Corruption 9. Unions 10. Environmental activists 11. Approvals/bureaucratic risk 12. Conflict of authority 13. United States of America (USA) 14. Religious fundamentalism/ethnic tension 15. Interest withholding tax increases 16. Change in law 17. Partisanship 18. Xenophobia 19. Political independence of the courts 20. Regional blocs Government supports Direct undertaking Offtake guarantee Direct assurance to the lender Counter indemnities Treaty protection

11 Concession agreement Cofinancing Multi-party structures Market tie Countertrade [Barter} Political risk insurance (PRI) Currency inconvertibility agreements Partial Risk Guarantees (PRG) Partial Credit Guarantees (PCG) Foreign-exchange (FX) devaluation Debt:equity swaps Tax indemnification Financed structures War and insurrection residual Cash escrow Prepaid PRI premiums Study sources Prince chart Offshore proceeds account C h a p t e r 2 2 : P a r t i c i p a n t R i s k Sponsor pre-completion (Type 1) SPV 1. Company 2. Unincorporated joint venture (UJV) 3. Partnerships 4. Trusts Deficiency agreement Share pledge Board control Call option Study route Bankruptcy remoteness Pre-assignment C h a p t e r 2 3 : Supplier credits Leasing Hedging/swaps Alternate funding Interest-protection agreement Interest make-up agreement Back-ended interest I n t e r e s t - R a t e R i s k

12 C h a p t e r 2 4 : S y n d i c a t i o n R i s k Roles Choice of banks and placements parties Pricing Disclosure Club underwriting Broad syndication UN syndication Study structures Information memorandum Equator syndicate Syndicate Excel model Project Development Plan (PDP) Loan administration C h a p t e r 2 5 : Legal regime Concept of law Enforcement The courts Solicitors/lawyers Contracted structures Direct agreements Legislation Title insurance Study structures Title searches Legal opinions Due-diligence books Parallel security structure Offshore security structure Pre-transfer agreements A p p e n d i x 1 : L e g a l R i s k D i f f e r i n g D e f i n i t i o n s Mergers & Acquisitions (M&A) Project Financiers A p p e n d i x 2 : T y p i c a l o w n e r - c o n t r o l l e d i n s u r a n c e p r o g r a m m e ( O C I P ) Section 1 Owner s project company insurance coverages construction phase 1. Contractors-all-risk etc including delay-in-start-up (DIS/DSU) 2. Marine cargo and delay in start-up (DIS/DSU) 3. Umbrella/excess liability construction 4. Workers compensation and employer s liability 5. Business auto liability 6. Any other statutorily required coverages 7. Force Majeure

13 Section 2 Contractor s insurance requirements construction phase 1. Contractor equipment 2. Marine liability 3. Aircraft liability 4. Workers compensation and employer s liability 5. Business auto liability 6. Professional errors and omissions (E&O) design liability 7. Umbrella excess liability construction 8. Liquidated damages/efficacy (to be provided by equipment supplier) 9. Any other statutorily required coverages 10. Any other elective coverages Section 3 Owner s project company insurance coverages operational phase 1. Industrial all-risk property damage 2. Operational boiler and machinery coverage 3. Industrial all-risk loss of profits 4. Business auto liability 5. Third-party liability primary cover 6. Umbrella/excess liabilities 7. Any other statutorily required insurance coverages 8. Any other elective [insurance] covers