Broad topics of the Course

Introduction

Traditional Project Appraisal

  • Sponsor/Management
  • Technical
  • Market
  • Financial
  • Economic
  • Social/Environment

 Difference between Corporate Finance and Project Finance

 Project Finance

    • What and Why of “Project Finance” style financing
    • Why Public-Private Partnership (PPP)?
    • Need for Special Purpose Vehicles (SPVs)
    • Deal Diagram
      • Sponsors
      • Lenders
      • Contractors
      • Suppliers

 Types of Risks

  • During construction
  • Post construction
  • Common to both stages of the Project
  • Mitigation Strategy
  • Allocation (parking) of risks
  • Impact

 Contracts – a Power Project example

Review and Assessment of Bankability of Contracts:

  • Fuel Supply
  • Operations and Maintenance (O&M)
  • Engineering, Procurement, and Construction (EPC)
  • Concession Agreement (e.g PPA)
  • How Cash is controlled
  • “Waterfall” Arrangements
  • Covenants

 Role of Advisors

  • Owner’s Engineer
  • Lender’s Independent Engineer
  • Lender’s Legal Council
  • Insurance Advisor
  • EH&S Consultant
  • Others
  • A Case Study on Contracts/Advisors and role play discussions

Financing Projects – Sources of funds

  • Equity
  • Debt
  • Sub-debt
  • Covenants
  • Term sheet
    • Pricing
    • Interest rate (fixed / floating)
    • Margin Resets, put-call option
    • Prepayment premium, Upfront Fee and Commitment Fee
    • Availability period
    • Moratorium period, repayment period, door-to-door tenor, average tenor
    • Sub-limit of loan for availing Letters of Credit (LCs), Buyer’s Credit, Supplier’s Credit
    • Cash sweep
    • Financial Covenants
    • Sponsor Support
    • Hedging program
    • Creation of Debt Service Reserve Account (DSRA) – quantum and timing thereof, Dividend Restriction
    • Conditions Precedent (CPs): Upfront equity infusion (%), balance on pro-rata, Project Agreements
    • Security Creation – timing and assets to be covered
    • Stipulations regarding Lenders approval for various actions of the Borrower e.g. material modifications/amendments to the Project Documents
    • Stipulations regarding Sponsor: Stipulations regarding management and control of the Company, appointment of nominee director
    • Governing Law

 Financial Modeling – a high-level overview

    • Assumptions
    • Financial Statements
    • Ratio Analysis

Measuring ‘risk’

  • Sensitivity analysis
  • Scenario analysis
  • Simulation technique
  • “What if” analysis
  • Best Case and Worst Case Scenarios
  • Simulations and Probability distributions

 Control over cash flow

 “water-fall” arrangement

  • “Reserved Discretions”

 Inter-creditor matters

  • Between on-shore and off-shore lenders
  • Amongst offshore lenders
  • Differential rights
  • Decision-making process

 Negotiating a Term Sheet

 Monitoring