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Project and Infrastructure Finance
Week 1
Design Research
4 videos, 1 reading
Video: The Interaction Design Specialization
20 m
Video: Introducing Elizabeth Gerber
40 m
Video: Who, What, Where, When and How People Work
35 m
Video: Michael Chapman of IDEO on Interviewing
20 m
Reading: Slides
30 m
Graded: Final Quiz: Design Research
5 Questions
Week 2
Ideation
2 videos
Video: The Interaction Design Specialization
20 m
Video: Introducing Elizabeth Gerber
40 m
Graded: Cumulative Quiz
4 Questions
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Project and Infrastructure Finance

  /  Finance and financial management  /  Project and Infrastructure Finance

Project and Infrastructure Finance

About this course

Introduction

In today’s capital raise world, project finance is at heart a form of secured lending albeit one which offers a unique set of challenges to all stakeholders. The obvious risks are amplified by high levels of gearing and limited or non-recourse nature typical of project financing.

Through this course, You will Gain a thorough and practical working knowledge of the key areas of project and infrastructure finance with courses led by leading industry experts.

Course Objectives

The overall aim of this course is to equip participants with a comprehensive overview of project financing by taking them through all stages of a project financed transaction.

Key Learning Outcomes:

  • Apply a structured and systematic approach to assessing project finance transactions
  • Recognise the key characteristics of a robust project and identify the weakest links in the transaction
  • Use qualitative and quantitative tools and measures to distinguish the key risks
  • Interpret each of the risks to determine their severity and potential impact on the transaction structure
  • Appreciate how the mechanisms in the transaction documents operate to protect the creditors and evaluate the protection provided
  • Build a credit rationale in order to make and substantiate investment decisions

The workshop will make extensive use of case studies and exercises which can come from the following sectors:

  • Public-Private Partnerships (PPP)
  • Infrastructure & Public Services Projects (Transport, Municipal)
  • The power sector
  • Oil/gas, natural resources, and industry projects
Target Audience

This course is aimed at those professionals working for investment or commercial banks, investment funds or fixed income investors, who are interested in the principles of analysing project finance risk and the main elements of structuring project finance debt.  It is not aimed at experienced project finance practitioners who already have a sound understanding of the basic analytic process and structuring of project finance.

Course outlines

An overview of key issues in Project Finance
  • Overview of activity in Project Finance
  • Review of an Infrastructure Project Finance transaction to illustrate key aspects of the transaction and subsequent developments
  • Project Finance vs. the financing of projects
  • Principal options for government in financing infrastructure projects including PPP and PFI
  • The Project Finance “route map” – an overview of the key issues in evaluating and structuring a Project Finance transaction
  • Characteristics of strong sponsors
  • Ownership structure and relationship with key parties to the transaction
  • Operational and financial resources; strategic importance
  • Project vehicles and parties involved
  • Segregating cash flows and de-linking from related parties

 

Exercise: review of background on a core case study to identify the motivations and objectives of the main parties to the project

Risk evaluation in Project Finance
  • Key risks – construction, operating and financial
  • Typical approaches to risk allocation and mitigation
  • Overview of the approach to a credit analysis for power projects to illustrate key elements of a rating
  • Lessons from the past – what can be learned from past transactions about the value of forecasts

Exercise: participants review background on a core case study project and prepare a summarised”risk assessment” based on the risks and mitigants in the project

Sources of debt financing in projects and debt capacity
  • Rationale for Project Finance vs. other debt financing techniques
  • Debt capacity – Using projected cash flows as a basis for assessing debt servicing capacity
  • Export Credit Agencies and Development Banks; bank debt vs. bonds; senior vs. subordinated debt
  • Interest , foreign exchange and commodity price management issues in Project Finance
  • Potential use of credit enhancement

Exercise: review of a case study project to illustrate the debt financing

Financial yardsticks used by equity investors and the relationship of sponsors to the project company
  • An overview of the main project investment appraisal techniques, and implications in terms of risk and return and capital structuring of Project Finance transactions
  • Understanding the equity investor’s approach to achieving returns from the project company, including operating relationships with the project company, and cash extraction through re – financing
  • Measures used by Investors; payback period, NPV, IRR
  • Measures used by Lenders: leverage, Debt service, Loan Life, Project or Reserve Life Cover Ratios and economic rationale
  • Rating agency default statistics and rating criteria

Mini exercise: calculation and comparison of investment returns from selected projects

Documentation and structuring issues in Project Finance
  • Rationale and structure of loan documentation
  • Key covenants
  • Construction contracts and cost overrun guarantees – differing formats of construction contracts and mitigation of construction related risks
  • Intercreditor issues, including senior vs. subordinated debt
  • Third party credit support and security issues for debt financiers, including critical commercial issues in Concession  agreements, offtake agreements, completion and cost overrun agreements, and shareholder agreements

Debt Structure – Documentation

The aim of this section is to assess the appropriateness of the capital structure and debt structure features.

  • Funding Providers and types of funding
    • Development banks, export credit agencies, bilateral funds, commercial lenders, capital markets, offset and barter
    • Senior debt. hybrid and subordinated debt
  • Debt profile
  • Amount, term, amortisation schedule, currency and interest rate mechanisms
  • Borrowing base mechanism in oil/gas and mining sector
  • Security and credit rights
  • Payment waterfall
  • Collateral and assignment of contract rights
  • Rights of the controlling classes, inter-creditor issues
  • Structural features
  • Debt service covenants
  • Reserve accounts, cash sweeps, profit distribution controls
  • Refinancing risk
  • Application: assessment of debt structure and term sheet for case study

Debt Service and Counterparty Risk

The aim of this section is to determine the project’s capacity to generate stable cash flow to service the debt levels.

  • Using base case and appropriate stressed sensitivities
  • Assessing project’s debt service capability by using metrics: DSCR, LLCR, PLCR
  • Financial counterparty risks: creditworthiness and structural features to mitigate risk
  • Application: assessing debt service capability using cash flow forecasts and assessment of counterparty risks for case study
  • Case study – Participants review an outline summarized Term Sheet for the capital structure, covenants, third party credit support and security for an assigned case study project