Project Finance in Theory and Practice

Project Finance in Theory and Practice

Designing, Structuring, and Financing Private and Public Projects

2nd Edition - August 2, 2012

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  • Author: Stefano Gatti
  • eBook ISBN: 9780124157538

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This book presents comprehensive coverage of project finance in Europe and North America. The Second Edition features two new case studies, all new pedagogical supplements including end-of-chapter questions and answers, and insights into the recent market downturn. The author provides a complete description of the ways a project finance deal can be organized - from industrial, legal, and financial standpoints - and the alternatives available for funding it.  After reviewing recent advances in project finance theory, he provides illustrations and case studies. At key points Gatti brings in other project finance experts who share their specialized knowledge on the legal issues and the role of advisors in project finance deals.

Key Features

  • Forword by William Megginson, Professor and Rainbolt Chair in Finance, Price College of Business, The University of Oklahoma
  • Comprehensive coverage of theory and practice of project finance as it is practiced today in Europe and North America
  • Website contains interactive spreadsheets so that readers can input data and run and compare various scenarios, including up to the minute treatment of the cutting-edge areas of PPPs and the new problems raised by Basel II related to credit risk measurement


Upper-division undergraduates and graduate students worldwide working in subjects studying the financing of large-scale single projects, usually called "project finance." These students are typically interested in working in the finance departments of large corporations or in structured finance departments of large commercial banks

Table of Contents

  • Preface to the Second Edition

    Preface to the First Edition

    Scannapiecos Foreword


    About the Author and the Contributors

    Chapter 1. Introduction to the Theory and Practice of Project Finance


    1.1 What is Project Finance?

    1.2 Why Do Sponsors Use Project Finance?

    1.3 Who Are the Sponsors of a Project Finance Deal?

    1.4 Overview of the Features of Project Finance

    1.5 The Theory of Project Finance

    Chapter 2. The Market for Project Finance: Applications and Sectors


    2.1 Historical Evolution of Project Finance and Market Segments

    2.2 The Global Project Finance Market

    2.3 The Evolution of the PPP Market

    Chapter 3. Project Characteristics, Risk Analysis, and Risk Management


    3.1 Identifying Project Risks

    3.2 Risk Allocation with Contracts Stipulated by the SPV

    3.3 Summary of the Risk Management Process

    Chapter 4. The Role of Advisors in a Project Finance Deal


    4.1 The Role of Legal Advisors in Project Finance Deals

    4.2 The Role of the Independent Engineer in Project Finance Deals

    4.3 The Role of Insurance Advisors and Insurance Companies in Project Finance Deals

    Chapter 5. Valuing the Project and Project Cash Flow Analysis


    5.1 Analysis of Operating Cash Flows and Their Behavior in Different Project Life Cycle Phases

    5.2 Defining the Optimal Capital Structure for the Deal

    5.3 Cover Ratios

    5.4 Sensitivity Analysis and Scenario Analysis

    Chapter 6. Financing the Deal


    6.1 Advisory and Arranging Activities for Project Finance Funding

    6.2 Other Roles in Syndicated Loans

    6.3 Fee Structure

    6.4 International Financial Institutions and Multilateral Banks

    6.5 Bilateral Agencies: Developmental Agencies and Export Credit Agencies (ECAs)

    6.6 Other Financial Intermediaries Involved in Project Finance

    6.7 Funding Options: Equity

    6.8 Funding Options: Mezzanine Financing and Subordinated Debt

    6.9 Funding Options: Senior Debt

    6.10 Project Leasing

    6.11 Project Bonds

    Chapter 7. Legal Aspects of Project Finance


    7.1 The Project Company

    7.2 The Contract Structure

    7.3 Refinancing Project Finance Deals

    Chapter 8. Credit Risk in Project Finance Transactions


    8.1 The Basel Committee’s Position on Structured Finance Transactions (Specialized Lending)

    8.2 Rating Criteria for Specialized Lending and Their Application to Project Finance

    8.3 Rating Grade Slotting Criteria of the Basel Committee and Rating Agency Practices

    8.4 The Basel Accord and the Treatment of Credit Risk for Project Finance Loans: Is Project Finance More Risky Than Corporate Loans?

    8.5 Empirical Studies on Project Finance Defaults and Recovery Rates

    8.6 Introduction to the Concepts of Expected Loss, Unexpected Loss, and Value at Risk

    8.7 Defining Default for Project Finance Deals

    8.8 Modeling the Project Cash Flows

    8.9 Estimating Value at Risk through Simulations

    8.10 Defining Project Value in the Event of Default

    CASE STUDY 1: Cogeneration 1

    CASE STUDY 2: Italy Water System

    CASE STUDY 3: Quezon Power Ltd. Co.

    CASE STUDY 4: Milan Metro Line 5

    APPENDIX: The Structure and Functioning of the Simulation Model


    A1 Breakdown of the Financial Model

    Glossary and Abbreviations



Product details

  • No. of pages: 496
  • Language: English
  • Copyright: © Academic Press 2012
  • Published: August 2, 2012
  • Imprint: Academic Press
  • eBook ISBN: 9780124157538

About the Author

Stefano Gatti

Stefano Gatti
Stefano Gatti is the Antin Infrastructure Partners Chair Professor of Infrastructure Finance and Professor of Practice in Finance. He is the Director of the Full Time MBA and former Director of the International Teachers’ Programme at SDA Bocconi School of Management. His main area of research is corporate finance and investment banking. He has published in these areas including publications in the Journal of Money, credit and banking, Financial Management, the Journal of Applied Corporate Finance and the European Journal of Operational Research. Professor Gatti has published a variety of texts on banking and finance areas and has acted as a consultant to several financial and non-financial institutions and for the Italian Ministry of the Economy, the Financial Stability Board, The InterAmerican Development Bank, the Asian Development Bank and the OECD/Group of G20. He is financial advisor of the Pension Fund of Health care professions, member of the compliance risk committee of Deutsche Bank and member of the Board of Directors and board of auditors of Italian industrial and financial corporations.

Affiliations and Expertise

Professor, Bocconi University, Milan, Italy and consultant for banks and manufacturing firms in Italy and a trainer for managers and government members in Russia, Africa and China

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