The initial session defines project finance as distinct from other financing approaches, and spells ot the implications of the lack of recourse and the exposure to a single source of cashflow

The ownership of the project can take a number of different forms.  We look at the various legal structures and the pros and cons from both the Sponsor perspective and from the viewpoint of other parties.

Many projects that fail adopt the view that long term contracts are immune from renegotiation.

We demonstrate that as markets and political environments change, the renegotiation of contractual terms is inevitable, potentially exposing weaknesses in the project’s rationale.

Detailed consideration of security structures is covered in module 3.

The purpose here is to contract the role of security in limited recourse financings from the role on conventional corporate lending

Module 4 of the Academy is dedicated to Project Finance Modelling.

This section identifies the various ways in which the project cashflow model is critical in determining so many structural aspects of the financing.

Project financing is a lot more time-consuming and costly than conventional financing of projects.

There has to be good reason(s) for Sponsors to do it this difficult way, rather than the easy alternatives.

Project financings involve a spider’s web of contracts. These contracts are pointless unless there is an ability to enforce rights under them.

In cross-border context this is often not straightforward. Litigation is not the answer.

When the SPV is very weak (financially) and the counterparty may be a multinational corporation, structures need to be adopted to ensure the SPV is

shielded from duress.

At the end of the Academy modules, participants may select which electives they wish to attend for sectoral specialization.

The purpose of this session is to identify the ‘moving parts’ of projects in the various sectors and introduce the differences in structure and analysis that are encountered. When the SPV is very weak (financially) and the counterparty may be a multinational corporation, structures need to be adopted to ensure the SPV is shielded from duress.

Project financings involve a spider’s web of contracts. These contracts are pointless unless there is an ability to enforce rights under them. In cross-border context this is often not straightforward. Litigation is not the answer. When the SPV is very weak (financially) and the counterparty may be a multinational corporation, structures need to be adopted to ensure the SPV is shielded from duress.

The Free Cash Flow line in a financial model is the most important of all, for a number of different reasons. We summarize each of them.

Total dependence on a single cash flow results in structures and covenants that are not found in other financings. The analytical process can be summarized as Identification of Risks; Quantification of Risks; Management of Risks. The session takes in the design of amortisation structure, debt sizing for the different sectors, the financial covenants, the control of cashflows, and the implications of default.

Many international projects have a US$ Revenue stream, which makes US$ financing under Rule 144A a perfect fit. Project bonds are fundamentally different from corporate Eurobonds, and we review why so. The session also considers the availability of domestic currency bonds in the various markets, and the implications of the rating that a project has.

ECAs play an important role in many limited recourse financings – especially in the emerging markets. This session gives an understanding of the benefits this approach can deliver and the circumstances where it is optimal.

We look at the implications of undertaking a project without project finance, and then again how the investment analysis works when we introduce a SPV with limited recourse as the financing intermediary. The enhanced IRR that is delivered is then looked at more carefully to determine what its drivers are – particularly from the negotiated clauses in the financing term sheet.

Some risks are intended to be transferred to insurers. I some projects the insurance issues can be difficult and complex.

A short recap of the essential features of the preceding modules

Not only are the contractual obligations relevant to the party’s involved – it also an important part of lender evaluation (as well as grantors of concessions) how the ownership of a project may evolve over the term of the financing.

Getting the infrastructure built and getting it working, is often the critical challenge.  Once a project is working it is unlikely to stop performing except where there are macro-economic developments or political interference.  We take a careful look at how the allocation of risks and responsibilities is structured and the contractual protections that are put in place.

Offtake and Supply contracts are the same, viewed from the opposing parties’ perspective.  Power Purchase Agreements and Concessions also provide Revenue to the Project SPV but are dealt with in separate sections within this course.

This session captures the relationship between the government procurement agency and the private sector consortium.  We will go through the components of a Concession Agreement – and discuss the alternative structures that can be adopted and the merits of each.  The session also identifies the pros and cons of PPP financing structures, the alternative formats that can be adopted, and the documentation implications of the various approaches.

Module #1 in the Project Finance Academy suite of courses dealt with the financier’s analysis of a project and the structures adopted to micromanage the SPV’s single cashflow.  This session looks at the loan documentation itself.  It highlights the battlefield areas of negotiation between lenders and Sponsors, and also takes a deeper dive into those clauses in a loan agreement that are frequently misunderstood.

Security is jurisdictionaly specific, so a number of legal opinions as conditions precedent to financing are inevitably involved. Project financing is the purest form of cashflow lending, especially where the project assets are immovable. Some projects go to great lengths to eliminate security over tangible assets.  This session looks at the various forms of security and assignment of rights discusses the practical implications

There are four distinct approaches to financial modelling depending on the analytical purpose to which the model is intended to be put. We review each of these modelling approaches – the first three of which may have application in the context of project financing.

There are 8 principles of modelling best practice. The different principles will be addressed progressively throughout the module as opposed to a formal session, with illustrations of the problems if the principles are not respected.

Models are built to be subjected to analysis. The precise detail and nature of the analysis will change from transaction to transaction. A well-built model has sitting on top of it a single worksheet where the analyst spends all of their time, controlling the inputs, observing the outputs and driving the functionality – scenarios, sensitivities or break-evens. If the analyst ever needs to leave the Analysis worksheet the model hasn’t been built properly.

There are 4 types of operating cost from a modelling perspective and 6 characteristics that need to be captured. The Operating Costs worksheet is the most important in the model because it is the main determinant of cashflow volatility.

Any analysis performed on a model is nonsense if the model itself is nonsense or if it has material errors. There is no shortcut to model audit – to ensure that there are no errors at all – every unique formula in the model would have to be checked. The Model Review is a procedure that allows a recipient to discover if the model has credibility within a maximum time-frame of 30-40 minutes.

The primary performance indicator for the Sponsor is the IRR that they receive from both their financial and operational involvement in the project. In the majority of models it is observed that the IRR is calculated incorrectly (commonly using the XIRR function in excel) – which often with major error margins.

A variety of different financing worksheets can be encountered in the various contexts of project finance. We review each of them and implement them in a series of practicals.

We cover a number of administrative aspects of developing and maintaining a project finance model.