Principles of Project Finance

The Second Edition of this best-selling introduction for practitioners uses new material and updates to describe the changing environment for project finance.  Integrating recent developments in credit markets with revised insights into making project finance deals, the second edition offers a balanced view of project financing by combining legal, contractual, scheduling, and other subjects. Its emphasis on concepts and techniques makes it critical for those who want to succeed in financing large projects.  With extensive cross-references and a comprehensive glossary, the Second Edition presents anew a guide to the principles and practical issues that can commonly cause difficulties in commercial and financial negotiations.

• Provides a basic introduction to project finance and its relationship with other financing techniques
• Describes and explains: sources of project finance; typical commercial contracts (e.g., for construction of the project and sale of its product or services) and their effects on project-finance structures; project-finance risk assessment from the points of view of lenders, investors, and other project parties; how lenders and investors evaluate the risks and returns on a project; the rôle of the public sector in public-private partnerships and other privately-financed infrastructure projects; how all these issues are dealt with in the financing agreements

Private sector investors and lenders who intend to make project finance deals. Upper-division undergraduates and graduate students worldwide working in subjects studying the financing of large-scale single projects

List of Tables

List of Figures

Chapter 1. Introduction

Chapter 2. What is Project Finance?

§2.1 Introduction

§2.2 Definition and Basic Characteristics

§2.3 Development of Project Finance

§2.4 Elements of a Project-Finance Structure

§2.5 Examples of Project-Finance Structures

§2.6 Why Use Project Finance?

Chapter 3. Project Development and Management

§3.1 Introduction

§3.2 Sponsors and Other Investors

§3.3 Project Development

§3.4 The Rôle of Advisors

§3.5 Joint-Venture Issues

§3.6 The Project Company

§3.7 Public Procurement

Chapter 4. The Project-Finance Markets

§4.1 Introduction

§4.2 Commercial Banks

§4.3 Bonds

§4.4 Other Non-Bank Lenders

§4.5 Other Sources of Private-Sector Debt

Chapter 5. Working with Lenders

§5.1 Introduction

§5.2 Commercial Banks

§5.3 Bonds

§5.4 Bank Loans Versus Bonds

§5.5 Lenders’ Due-Diligence and External Advisors

§5.6 Lenders and the Public-Procurement Process

Chapter 6. Types of Project Agreement

§6.1 Introduction

§6.2 BOT, BTO et al.

§6.3 Offtake Contract

§6.4 Availability-based Contract

§6.5 Concession Agreement

§6.6 Other ‘PPP-like’ Contracts

Chapter 7. Common Aspects of Project Agreements

§7.1 Introduction

§7.2 Term

§7.3 Payment Mechanism

§7.4 Contract Monitoring by the Offtaker/Contracting Authority

§7.5 Performance Bonding and other Guarantees

§7.6 Compensation Events

§7.7 Excusing Causes

§7.8 Relief Events

§7.9 Step-in by the Offtaker/Contracting Authority

§7.10 Termination of the Project Agreement

§7.11 Change of Ownership

§7.12 Dispute Resolution

Chapter 8. Sub-Contracts and Other Related Agreements

§8.1 Introduction

§8.2 Construction Contract

§8.3 O&M/Maintenance Contract(s)

§8.4 Building-Services Contract

§8.5 Fuel or Other Input-Supply Contract

§8.6 Insurance

§8.7 Site Lease and other Usage Rights

§8.8 Permits and Other Rights

§8.9 Amendments to and Replacement of Sub-Contracts

§8.10 Parent-Company Guarantees

§8.11 Direct Agreements

Chapter 9. Commercial Risks

§9.1 Introduction

§9.2 Risk Evaluation and Allocation

§9.3 Analysis of Commercial Risks

§9.4 Commercial Viability

§9.5 Construction Risks

§9.6 Revenue Risks

§9.7 Operating Risks

§9.8 Input-Supply Risks

§9.9 Uninsured Risks and Related issues

§9.10 Environmental Risks

§9.11 Residual-Value Risk

§9.12 Contract Mismatch

§9.13 Recourse to the Sponsors

§9.14 Risks for an Offtaker/Contracting Authority

§9.15 Why Do Projects Fail?

§9.16 Loss on Default

Chapter 10. Macro-Economic Risks

§10.1 Introduction

§10.2 The Time Value of Money

§10.3 Interest-Rate Risks

§10.4 Inflation

§10.5 Foreign-Exchange Risks

§10.6 Refinancing Risk

Chapter 11. Regulatory and Political Risks

§11.1 Introduction

§11.2 Projects and Politics

§11.3 Change in Law

§11.4 Investment Risks

§11.5 Wider Political Risks

§11.6 ‘Sub-Sovereign’ Risk

§11.7 Government Support Agreement

§11.8 Political-Risk Insurance and Guarantees

Chapter 12. Financial Structuring

§12.1 Introduction

§12.2 Investors’ Analysis and Equity Structure

§12.3 Debt Cover Ratios

§12.4 Debt:Equity Ratio

§12.5 Debt Service Profile

§12.6 Interest Rate and Fees

§12.7 Additional Costs

§12.8 Optimizing the Financial Structure

Chapter 13. The Financial Model

§13.1 Introduction

§13.2 FUNCTIONS OF THE FINANCIAL MODEl

§13.3 Model Inputs

§13.4 Macro-Economic Assumptions

§13.5 Project Costs and Financing

§13.6 Operating Revenues and Costs

§13.7 Accounting and Taxation Issues

§13.8 Model Outputs

§13.9 Sensitivity Analysis

§13.10 The Banking Case, Base Case and Financial Close

§13.11 Using the Model after Financial Close

Chapter 14. Project-Finance Loan Documentation

§14.1 Introduction

§14.2 Lenders’ Term Sheet

§14.3 Construction Phase—Drawdown of Debt

§14.4 Operating Phase—Control of Cash Flow

§14.5 Reporting Requirements

§14.6 Debt Cancellation and Prepayment

§14.7 Lenders’ Security

§14.8 Conditions Precedent

§14.9 Representations and Warranties

§14.10 Covenants

§14.11 Permissions, Waivers and Amendments

§14.12 Events of Default

§14.13 Lenders’ Decision-Making Process

§14.14 Intercreditor Issues

§14.15 Governing Law and Jurisdiction

§14.16 Debt Refinancing

§14.17 Secondary Equity Sale

Chapter 15. Public-Sector Financial Support

§15.1 Introduction

§15.2 Indirect Public-Sector Financial Support

§15.3 Direct Public-Sector Financial Support

§15.4 Mezzanine Debt

§15.5 Standby Financing

§15.6 Refinancing after Project Completion

§15.7 Gap Financing

§15.8 Policy Banks

§15.9 Credit Guarantee Finance

§15.10 Capital Grant

§15.11 Viability-Gap Funding

§15.12 Part-Construction of the Project

§15.13 Complementary Investment

§15.14 Full Debt Guarantee

§15.15 First-Loss Debt Guarantee

§15.16 Pari-Passu Debt Guarantee

§15.17 Debt Underpinning

§15.18 Minimum Revenue Guarantee (‘MRG’)

§15.19 Tariff Subsidy

§15.20 Public-Sector Project Company

§15.21 Guarantee Funds

Chapter 16. Export-Credit Agencies and Development-Finance Institutions

§16.1 Introduction

§16.2 Export Credit Agencies

§16.3 Political-Risk Insurance for Investors

§16.4 ECAs and Bilateral DFIs

§16.5 Multilateral Development-Finance Institutions

Annex: U.S. Exim ‘Project Criteria and Application Information Requirements’

Chapter 17. Recent Market Developments and Prospects for Project Finance

§17.1 Introduction

§17.2 The Effect of the 2008 Financial Crisis

§17.3 The ‘Basel Process’

§17.4 Non-Bank Lenders

§17.5 Improving Project-Finance Credit Risk

§17.6 New Models

§17.7 The Future of Project Finance

Glossary and Abbreviations

Index