Financing PPPs: Project Finance June 2006

Transcription

1 Financing PPPs: Project Finance June 2006

2 Index Section I. Section II. Section III. Project Finance Spanish Market Advantages Risk Matrix P. 2

3 Section I Project Finance Project Finance

4 Definition Definition: A form of financing projects, primarily based on claims against the financed asset or project rather than on the sponsor of the project. However, there are varying degrees of recourse possible. Repayment is based on the future cash flows of the project. P. 4

5 Principal Participants in a Project Finance Sponsors national National Banks Government Banks Capital Markets Sponsors international International Banks Monolines P. 5

6 Financing Structure Shareholders Dividends + interest Capital Administration Concession Agreement Payment CV + CF Project Company (SPV) Financial contracts Principal + Interest Banks Payment Construction Contract Operating & Maint. Contract Insurance company Construction Joint Venture Operating Company Service Contracts Service supplier 1 Service supplier 3 Service supplier 3 Service supplier n P. 6

7 Calendar Process duration: 4 months Phase I Financial Structure Phase II Risk analysis Phase III Financial closing Feasibility Study Contracts & Risk management Economic analysis and Financing structure Term Sheet & IM Arrangers: Term Sheet & Contracts negotiation Financial closing Participants: Syndication Financial Advisor: Banks P. 7

8 Financial institution rules Advisory Tender preparation Advisory to the Sponsors Feasibility study of the project Risk analysis Arrangement/Financing Financial Underwriting Funding in the Capital Markets Other financial facilities: bridge, RCF, Possibility of equity investments Optimum economic, legal and tax structure Other sponsor research Legal structure Coordination between different participants Project presentation in the Capital Markets Negotiation with the financial institutions P. 8

9 Volume of operations USD Mll UK USA Australia Spain Italy China Indonesia Brazil Japan México Volume operations (2004) Dealogic P. 9

10 Financing tools Bank financing No bank financing Securitization Bonds P. 10

11 Bank Financing (I) Main financial source Debt with SPV. Operative relationship with the sponsors, no financial relationship. High leverage ratios. Long repayment terms. Taking into account Cash Flows It is out of the balance financing for the sponsors, no effect in rating Pricing: Interest rate + margin Reference rate: DSCR P. 11

12 Bank Financing (II) The Financial model is the main tool to obtain the economic analysis and the financing structure. Main ratios to measure project capacity to face debt obligations: Debt Service Coverage Ratio ( DSCR ) Cash Flow available for debt service Debt service (principal, interest & commissions) Interest Coverage Ratio ( ICR ) Cash Flow available for debt service Interest Loan Live Coverage Ratio (LLCR) NPV of Cash Flows available for debt service (during debt) discounted at debt rate Outstanding debt P. 12

13 Leverage and Term UK PPP s 90 IPP Spain (1) x Wind Spain x Roads Ireland x x 80 Debt/Equity Ports Spain x Roads USA x Wind USA Underground Spain x x Debt / Equity vs term Total term P. 13

14 Non Bank Financing Securitization The process of aggregating credit rights of the concessionaire, mainly right to collect tolls, revenues of the commercial areas and payments of the Administration into a negotiable security. Risk transfer to the investor. Different terms. Widely used in the international markets. No in Spain Advantages: cheaper financing cost and flexibility. P. 14

15 Non Bank Financing Bonds As the borrower is a SPV, the risk profile is complicated and not attractive for the bond market. This type of financing is used with a Monoline guaranty In Spain it has been used just in the Autovía de los viñerdos and M-45 P. 15

16 Section II Spanish market advantages Project Finance

17 Spanish Market The main differences with the UK model UK SPAIN Initial competition Concession terms negotiation Concession Grant Initial competition Initial terms stated and then negotiation Binding terms Fixed from the beginning Financial Close prior to concession grant Financing Financial Close once the Concession is granted P. 17 Section II

18 Spanish Market Advantages of the Spanish Legal Framework Asset Responsibility Economic + Financial Equilibrium Legal framework helps to structure different financial schemes P. 18 Section II

19 Section III Risk Matrix Project Finance

20 Risk Matrix Main risks Building & Operational Risk: Building Demand Operating Financial Risk P. 20 Section III

21 Risk Matrix Risk mitigation Contracts will provide mechanisms to mitigate the risk: Contractual structure & risk mitigation Risk: Contract Cost Construction Contract Mitigation mechanism Fixed price Delay Construction Contract Penalty clause Technical performance Construction Contract Penalty clause Operating Operation Contract Technical advisor will control the operation Traffic Concession contract Fix tariff Tariff / Law Concession contract Tariff will compensate traffic and law changes Force Majeure Concession contract Concession agreement will cover these risk Political risk Concession contract Concession agreement will cover these risk P. 21 Section III

22 Risk Matrix Other risk mitigations Sponsors Technical & Financial solvency. Due diligence. EPC Contract. Long warranty periods. Penalty clauses. Operating & Maint. Contract. Extension definition. Length. Cost limits. P. 22 Section III

23 Risk Matrix Advisors & Insurance Program Traffic Advisor Insurance Advisor External Advisors Legal Advisor Technical Advisor Audit Advisor Damages Construction ALOP Civil liability Insurance program ALOP Operating Civil liability Force Majeure P. 23 Section III