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Project Finance in Theory and Practice - 2nd Edition - ISBN: 9780123919465, 9780124157538

Project Finance in Theory and Practice

2nd Edition

Designing, Structuring, and Financing Private and Public Projects

Author: Stefano Gatti
Hardcover ISBN: 9780123919465
eBook ISBN: 9780124157538
Imprint: Academic Press
Published Date: 22nd August 2012
Page Count: 496
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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




No. of pages:
© Academic Press 2013
22nd August 2012
Academic Press
Hardcover ISBN:
eBook ISBN:

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


"Professor Gatti offers the reader an original viewpoint combining rigorous theory with constant reference to market best practices." --Roberto Albisetti, IFC World Bank Group and University of Genoa

"Gatti's book provides comprehensive and coherent coverage of project finance, including  transaction structures, the institutional environment, and  financial analysis.  Its presentation of practical examples and cases makes it a great teaching tool." --Raymond Hill, Emory University

"A good read as well as an excellent reference book, Project Finance in Theory and Practice is very valuable as it is successfully pitched to be useful to readers of all levels of education and experience and explains the roles and objectives of the different parties very clearly. The book can be used both for training and as a guide to best practices." --Alexander S. Moczarski, President and Chief Executive Officer - Guy Carpenter - Marsh & McLennan Group

"Project finance is a long-established technique for non recourse financing which is extremely relevant today, with more and more infrastructure and other large projects being developed. Professor Gatti and the other contributors use practical concepts and very relevant case studies to clearly explain Project Financing to its readers. It is a must read and a reference book for professionals and practitioners." --Jean Pierre Mustier, UniCredit Deputy General Manager and Head of CIB Division

Ratings and Reviews