Wall Street Prep Webinar
An Insiders Primer on
Project Finance
Seminar 1: The who and why, structure and funding sources
Introduction
A brief overview of project finance
What is project finance?
Who uses it and why?
Structure and participants
Introduction to seminar 2
Structuring a project finance deal
Risks
Key metrics
The instructor
Haydn Palliser
Managing Director
BEng (Hons), MAppFin
[email protected]
+1 646 771 5937
Project finance involvement for 10+
years
Managed projects from various
angles including engineering,
contract management, financial
modeling, strategic and financing
advice, negotiating and arranging
financing
Project finance consultant across
energy, infrastructure and mining
An expert trainer, training teams in
project finance within banks, PE
firms, funds and corporates
Wall Street Preps Project Finance Partner
Corality Financial Group is a global consulting firm specialising in training, financial modeling,
model auditing and transaction support.
Thought leaders in the world of analytical consulting
Offices in London, Sydney, New York
Project finance trainers and leaders
Consulting
Training
Financial
modelling
Model audit
Transaction
support
Opportunities to learn more!
Corality runs public boot camps in project finance, including:
2-day best practice project finance modeling
2-day advanced project finance modeling
Project finance: concepts and applications
Project finance: transaction simulation masterclass
Financial modeling for renewable energy projects
PPP/P3/Infrastructure project modeling
Slide deck for the course
Download:
http://wsp_coursematerials.s3.amazonaws.com/Webinars
Technical issues during the presentation:
[email protected] What is project
finance?
A brief overview of project finance
Project Finance is a means of financing projects with significant capital requirements and/or
which may not otherwise secure funding
Financing assets or groups of assets (projects) limited role
Relatively small companies are able to build large and complex projects
Non-recourse debt repayment, solely reliant on the cash flows of the project
Typically applied to projects in Power and Energy, Natural Resources, Utilities and Infrastructure
(Social and Economic) industries
It focuses on structuring risk through contracts to the parties most able to take it
But what is a project?
If you have procured all of the necessary:
- Components;
- Land;
Labour, etc.
Do you have a bankable* project?
*bankable = financeable project = a project which could raise third party finance, both debt and equity?
A brief overview of project finance
If you have procured all of the necessary components, land, labour, etc.; and
Have installed all of the components above; and
Your company produces the desired output
Do you have a bankable project?
No, not yet a bankable project!
a bankable project is a set of contracts, which:
Regulate the relationships between the various parties involved in the project, including
builders, operators, clients, suppliers, etc.
Regulate the risk sharing between the various parties involved in the projects
Regulate the obligations and remuneration between the various parties involved in the projects
Generate sufficient cash flow to repay your debt / provide a return
Bankable project
All required
permits
Developer
Grid Connection
Agreement
Financiers
Project
Company
(SPV)
Land Lease /
Right to Use
EPC Contract
Offtake
Agreement
Fuel Supply
Site Security
O&M Contract
Management
Contract
Insurance
Contract
Timeline and completion
Development
1 3 yrs
Construction
Financial Close
Operations
1-3 yrs
5 - 30 yrs
Completion
Refinancing
Closure
1 - 5 yrs
The majority of the work is performed during the development phase
Arranging finance takes ~3-6 months
It is important that all parties (contractors, suppliers and financiers) agree on
the contractual structure simultaneously occurs at the Financial Close day
Early involvement of a professional financial adviser and due diligence
consultants is critical to the success of the project
Completion and cash flow / contracted period
Characteristics of project finance
Capital Intensive tendency towards large-scale projects (industry focused)
Highly Leveraged typical gearing of 50-75% (mezzanine debt ensures return to equity holders)
Long Term duration can typically reach 15-35 years
Special Purpose Vehicle project company typically established by sponsor to own and operate
the project
Characteristics of project finance
Non-recourse Financing Lenders only repaid from project cashflow
Controlled Dividend Policy Income to cover OPEX, debt service, tax and ROE
Multiple Participants technical and geographical scale demands many players
Allocated Risk identification and allocation of key risks is crucial
Contracted cash flows
Expensive greater information requirements and contractual complexity increases overall
transaction costs
Why use project
finance?
Some alternative funding sources
Corporate debt (capital markets / debt)
Equity
Venture Capital
Convertible Notes
Shareholder Loans
Quasi debt / equity
Why Bother with Project Finance?
Can you achieve the same thing with corporate finance?
All required
permits
Developer
Grid Connection
Agreement
Land Lease /
Right to Use
Insurance
Contract
Projects
Financiers
Why Bother with Project Finance?
Can you achieve the same thing with corporate finance?
All required
permits
Developer
Grid Connection
Agreement
Land Lease /
Right to Use
Insurance
Contract
Projects
Financiers
Advantages:
Simpler
Easier
Disadvantages:
Hard to transfer the ownership to 3rd parties
Concentrated risk
A single project may bankrupt the Developer
Project > Developer
Off-balance sheet financing
Other Consideration:
Cost of Capital
Commercial drivers for project finance
Limited or no recourse
Risk sharing
Involvement of joint venture partners
Restrictions on level of corporate borrowing
Tax advantages
Local legislation
Characteristics of project finance
Non-recourse Financing Lenders only repaid from project cashflow
Controlled Dividend Policy Income to cover OPEX, debt service, tax and ROE
Multiple Participants technical and geographical scale demands many
players
Allocated Risk identification and allocation of key risks is crucial
Expensive greater information requirements and contractual complexity
increases overall transaction costs
Comparison to corporate finance
Common project finance funding sources
Traditional project finance banks
Capital markets
Debt funds
Asset or alternative funds
Government
More on this in seminar 2..
Structure and
participants
Project finance structure
Participants
Sponsor
o SPV owners (equity providers)
o Typically active in project (have a role)
o Financial capacity is still important
o Partnering and risk sharing
Borrower
o Special purpose vehicle (SPV)
o Enters into contracts
Participants
Construction contractor
o Fixed price / turnkey vs other structures, track record
Operator
o Provide operations and maintenance
o Experience, fixed price
Offtaker
o Credit risk
o Fixed price vs volume vs both
Participants
Financiers
o Experience critical (structure / metrics / problems)
o Multiple lenders and structures (seminar 2)
Advisors
o Helping bankability before going to banks
o Financial model is central to negotiation due to structure
o Legal, accounting / tax, insurance, technical, financial
Seminar 2
Wrap-up
Project finance is a viable and often compulsory alternative to capital intensive projects
Risk allocation is a major driver
Can provide additional leverage
Is a well defined process, know the right steps
Financial model is your main negotiation tool, metrics bespoke to project finance, scenarios!
Next steps
Seminar 2 (register now!) covers:
o Cash flow waterfall and project financing structure
o Risk structuring
o Financial modeling & metrics
Review the project finance courses on Wall Street Preps website
o Project finance modeling and theory courses
o Speak to Wall Street Prep for more information
