영문목차
Preface to the Second Edition=xv
Preface to the First Edition=xix
Scannapieco's Foreword=xxiii
Foreword=xxv
About the Author and the Contributors=xxix
CHAPTER 1. Introduction to the Theory and Practice of Project Finance=1
Introduction=1
1.1. What Is Project Finance?=1
1.2. Why Do Sponsors Use Project Finance?=2
1.3. Who Are the Sponsors of a Project Finance Deal?=4
1.3.1. Industrial Sponsors in Project Finance Initiatives Linked to a Core Business=4
1.3.2. Public Sponsors with Social Welfare Goals=4
1.3.3. Contractor/Sponsors Who Develop, Build, or Run the Plant=8
1.3.4. Financial Investors=9
1.4. Overview of the Features of Project Finance=11
1.4.1. The Contractor and the Turnkey Construction Contract(TKCC)=12
1.4.2. Operations and Maintenance Contractor and the O&M Agreement=12
1.4.3. Purchasers and Sales Agreements=13
1.4.4. Suppliers and Raw Material Supply Agreements(RMSAs)=13
1.4.5. Project Finance as a Risk Management Technique=13
1.5. The Theory of Project Finance=14
1.5.1. Separate Incorporation and Avoidance of Contamination Risk=15
1.5.2. Conflicts of Interest between Sponsors and Lenders and Wealth Expropriation=19
1.5.3. Project Finance in the Academic Literature=21
CHAPTER 2. The Market for Project Finance : Applications and Sectors=27
Introduction=27
2.1. Historical Evolution of Project Finance and Market Segments=27
2.2. The Global Project Finance Market=29
2.3. The Evolution of the PPP Market=34
2.3.1. The European Market=37
CHAPTER 3. Project Characteristics, Risk Analysis, and Risk Management=43
Introduction=43
3.1. Identifying Project Risks=45
3.1.1. Precompletion Phase Risks=45
3.1.1.1. Activity Planning Risk=45
3.1.1.2. Technological Risk=46
3.1.1.3. Construction Risk or Completion Risk=46
3.1.2. Postcompletion Phase Risks=47
3.1.3. Risks Found in Both the Pre- and Postcompletion Phases=47
3.1.3.1. Interest Rate Risk=48
3.1.3.2. Exchange Rate Risk=49
3.1.3.3. Derivatives Contracts for Managing Interest Rate Risk and Exchange Risk=49
3.1.3.4. Inflation Risk=52
3.1.3.5. Environmental Risk=54
3.1.3.6. Regulatory Risk=55
3.1.3.7. Political Risk and Country Risk=55
3.1.3.8. Legal Risk=56
3.1.3.9. Credit Risk or Counterparty Risk=57
3.2. Risk Allocation with Contracts Stipulated by the SPV=57
3.2.1. Allocation of Construction Risk : The Turnkey(or Engineering, Procurement, and Construction [EPC]) Agreement=58
3.2.2. Allocation of Supply Risk : Put-or-Pay Agreements=60
3.2.3. Allocation of Operational Risk : Operations and Maintenance(O&M) Agreements=61
3.2.4. Allocation of Market Risk=62
3.2.4.1. Offtake Agreements=64
3.2.4.2. Offtake Contracts in the Power Sector=64
3.2.4.3. Offtake Agreements in PPP Initiatives=71
3.3. Summary of the Risk Management Process=75
CHAPTER 4. The Role of Advisors in a Project Finance Deal=77
Introduction=77
4.1. The Role of Legal Advisors in Project Finance Deals=78
4.1.1. Legal Advisor, Legal Advisors, and Law Firms : International and Local Legal Counsel=79
4.1.2. Project Financing Development Stages and Impacts on the Role of Legal Advisors=81
4.1.2.1. Forming the Group of Sponsors=81
4.1.2.2. Industrial Development of the Project―The Project Documents=83
4.1.2.3. Project Financing―The Finance Documents=85
4.1.2.4. The Due Diligence Legal Report=86
4.1.2.5. Legal Opinions=87
4.1.2.6. Syndicating the Financing=88
4.1.2.7. The Operating Period : Maintenance of the Project Financing=89
4.2. The Role of the Independent Engineer in Project Finance Deals=89
4.2.1. Initial Due Diligence Reporting=90
4.2.1.1. Documents Required for the Due Diligence Activity=91
4.2.1.2. Accessory Services=92
4.2.1.3. Documents Produced during the Due Diligence Activity Phase=92
4.2.2. Monitoring Realization of the Project(Engineering and Construction)=92
4.2.2.1. Monitoring Construction of the Works=93
4.2.2.2. Issuing Progress Reports=95
4.2.2.3. Validation of Mechanical Completion(Works Completion Certificate)=96
4.2.3. Assistance at the Time of Plant Acceptance=97
4.2.3.1. Validation of the Provisional Acceptance Certificate(PAC)=98
4.2.3.2. Monitoring the Testing Phase=99
4.2.3.3. Validation of the Final Acceptance Certificate(FAC)=101
4.2.4. Monitoring Operations Management=102
4.3. The Role of Insurance Advisors and Insurance Companies in Project Finance Deals=103
4.3.1. Rationale for Using Insurance in Project Finance Deals=104
4.3.2. When Should Insurance Products Be Used?=105
4.3.3. Areas Where the Insurance Advisor Is Involved=106
4.3.3.1. Preliminary Insurance Report Phase=106
4.3.3.2. Final Insurance Report Phase―Construction Phase=106
4.3.3.3. Final Insurance Report Phase―Operations Phase=107
4.3.3.4. The Most Problematic Areas=107
4.3.4. Types of Conventional and Financial Insurance Products Available for Project Finance Deals=108
4.3.4.1. Insurance Coverage during the Construction Phase=109
4.3.4.2. Insurance Coverage during the Operations Phase=111
4.3.4.3. Bonding=111
4.3.5. Integrated Insurance Solutions―Structure and Content=112
4.3.6. Classification of Insurance Underwriters=113
CHAPTER 5. Valuing the Project and Project Cash Flow Analysis=117
Introduction=117
5.1. Analysis of Operating Cash Flows and Their Behavior in Different Project Life=118
5.1.1. Inputs for Calculating Cash Flows=121
5.1.1.1. The Timing of the Investment=121
5.1.1.2. Initial Investment Cost=123
5.1.1.3. VAT―Value-Added Tax=125
5.1.1.4. Public Grants=126
5.1.1.5. Analysis of the Sales Contract, the Supply Contract, and Operating Expenses=129
5.1.1.6. Trends in Working Capital=131
5.1.1.7. Taxes=135
5.1.1.8. Macroeconomic Variables=135
5.2. Defining the Optimal Capital Structure for the Deal=136
5.2.1. Equity=138
5.2.2. Senior Debt=139
5.2.3. VAT Facility=142
5.2.4. Stand-by Facility=143
5.2.5. Identifying Sustainable Debt/Equity Mixes for Sponsors and Lenders=144
5.2.5.1. Optimal Capital Structure for Project Sponsors=144
5.2.5.2. Optimal Capital Structure for Lenders=147
5.3. Cover Ratios=152
5.3.1. What Cover Ratios Can Tell Us and What They Cannot=154
5.3.1.1. Debt Service Cover Ratio(DSCR)=154
5.3.1.2. Loan Life Cover Ratio(LLCR)=156
5.3.2. Cover Ratios as an Application of the Certainty Equivalents Method=159
5.4. Sensitivity Analysis and Scenario Analysis=160
5.4.1. Which Variables Should Be Tested in Sensitivity Analysis?=162
CHAPTER 6. Financing the Deal=167
Introduction=167
6.1. Advisory and Arranging Activities for Project Finance Funding=167
6.1.1. Advisory Services=169
6.1.2. Arranging Services=173
6.1.3. Integration of Advisory and Arranging Services=174
6.2. Other Roles in Syndicated Loans=180
6.2.1. Single-stage Syndication, Two-stage Syndication, and Club Deals=181
6.3. Fee Structure=183
6.3.1. Fees for Advisory Services=183
6.3.2. Fees for Arranging Services=184
6.3.3. Fees to Participants and the Agent Bank=184
6.3.4. Example of Fee Calculation=186
6.4. International Financial Institutions and Multilateral Banks=188
6.4.1. Multilateral Organizations=190
6.4.1.1. World Bank Group=191
6.4.2. Regional Development Banks=197
6.4.2.1. European Investment Bank(EIB)=198
6.4.2.2. AfDB(African Development Bank)=199
6.4.2.3. IDB(Islamic Development Bank)=201
6.4.2.4. ADB(Asian Development Bank)=202
6.4.2.5. European Bank for Reconstruction and Development(EBRD)=203
6.4.2.6. Inter-American Development Bank(IADB)=204
6.5. Bilateral Agencies : Developmental Agencies and Export Credit Agencies(ECAs)=204
6.5.1. Developmental Agencies=204
6.5.2. Export Credit Agencies(ECAs)=206
6.5.2.1. Financing Activity=207
6.5.2.2. Insurance Activity=208
6.6. Other Financial Intermediaries Involved in Project Finance=212
6.7. Funding Options : Equity=217
6.7.1. Timing of the Equity Contribution and Stand-by Equity and Equity Acceleration=217
6.7.2. Can Shares in an SPV Be Listed on a Stock Exchange?=219
6.8. Funding Options : Mezzanine Financing and Subordinated Debt=219
6.9. Funding Options : Senior Debt=229
6.9.1. The Base Facility=229
6.9.2. Working Capital Facility=229
6.9.3. Stand-by Facility=230
6.9.4. VAT Facility=230
6.9.5. Loan Remuneration=230
6.9.6. Loan Currency=231
6.9.7. Repayment Options=231
6.9.8. Refinancing Loans Already Granted to the SPV=238
6.9.8.1. Soft Refinancing(Waiver)=238
6.9.8.2. Hard Refinancing=239
6.10. Project Leasing=242
6.10.1. Valuing the Convenience of a Project Leasing=243
6.10.2. The Tax Effect=245
6.11. Project Bonds=246
6.11.1. Investors in Project Bonds=248
6.11.2. Various Categories of Project Bonds=249
6.11.2.1. Nationality of the Issuer in Terms of Issue Currency for Securities and Placement Market=249
6.11.2.2. Target Investors=250
6.11.2.3. Capital and Interest Payment Guarantees=251
6.11.2.4. Subordination Clauses=252
6.11.2.5. Interest Calculation Method=252
6.11.2.6. Capital Repayment Method=252
6.11.3. Municipal Bonds=253
6.11.4. When Should Project Bonds Be Used?=254
6.11.4.1. Investor Target=255
6.11.4.2. Tenor of Financing=255
6.11.4.3. Preservation of the Sponsors' Financial Flexibility=255
6.11.4.4. Inflation-Linked Bonds=256
6.11.4.5. Structure for Utilization and Repayment of Funding=256
6.11.4.6. Credit Policies and Market Sentiment=256
6.11.4.7. Fixing the Financing Terms and Conditions=257
6.11.4.8. Confidentiality=257
6.11.4.9. Covenants and Monitoring Management of the Project=257
6.11.4.10. Renegotiation of Contractual Conditions and Refinancing=258
6.11.5. Procedure for Issuing Project Bonds=258
6.11.5.1. Rating Agencies=259
6.11.5.2. Bond Paying Agent and Trustee=262
6.11.5.3. Choice of the Project Bond Bookrunner=263
6.11.5.4. Setting Up the Syndicate : Managers and Selling Group=263
6.11.5.5. The Subscription Agreement=265
6.11.5.6. The Final Bond Prospectus=266
CHAPTER 7. Legal Aspects of Project Finance=267
Introduction=267
7.1. The Project Company=268
7.1.1. Reasons for Incorporating the Project in a Project Company=269
7.1.1.1. Defensive/Protective Reasons=269
7.1.1.2. Positive Reasons=269
7.1.2. The Project Company as a Joint Venture : Another Reason to Develop a Project in an SPV=270
7.1.3. The Project Company and Groups of Companies=270
7.1.4. Corporate Documentation : Articles of Incorporation=271
7.1.5. Outsourcing the Corporate Functions of the Project Company : How the Company/Project Is Actually Run=271
7.2. The Contract Structure=272
7.2.1. Before the Financing : The Due Diligence Report and the Term Sheet=273
7.2.1.1. Due Diligence Report=273
7.2.1.2. The Term Sheet=274
7.2.2. Classification of Project Documents=276
7.2.3. The Credit Agreement=277
7.2.3.1. Overview=277
7.2.3.2. Interpretation=278
7.2.3.3. The Credit Facilities=278
7.2.3.4. Conditions Precedent : Availability of Drawdowns=279
7.2.3.5. Interest on Drawdowns=280
7.2.3.6. Repayment of the Loans : Cancelling the Facility=282
7.2.3.7. Credit Agreement Costs=283
7.2.3.8. Information Flow from Borrowers to Lenders : Financial Ratios=284
7.2.3.9. Distributions=285
7.2.3.10. Representations=286
7.2.3.11. The Project Company's Covenants=288
7.2.3.11.1. Positive Covenants=288
7.2.3.11.2. Negative Covenants=289
7.2.3.12. Events of Default and Their Consequences : The Financial Crisis of the Transaction=290
7.2.3.13. Role of the Agent=293
7.2.3.14. The Account Bank : Brief Comments on the Account Structure and the Monitoring of Payments=294
7.2.3.15. Assignment of the Credit Agreement : Assignment after Syndication=297
7.2.3.16. Reserved Discretions=297
7.2.4. Security Documents : Security Interests and What They Do=298
7.2.4.1. Introduction to the System of Security in Project Finance=298
7.2.4.2. Common Provisions in the Security Documents=301
7.2.4.3. Pledge on Project Company Shares=301
7.2.4.4. Security on the Project Company's Receivables=302
7.2.4.5. Security on the Project Company's Bank Accounts=303
7.2.4.6. Mortgage on the Project's Property=303
7.2.4.7. Security on Other Project Company Assets=304
7.2.4.8. Direct Agreements=304
7.2.4.9. Enforcing Security Interest and Lenders' Step-in Rights=305
7.2.5. Other Finance Documents=307
7.2.5.1. Equity Contribution Agreement=307
7.2.5.2. Intercreditor Agreement=308
7.2.5.3. Hedging Agreements=309
7.2.6. Project Agreements=310
7.2.6.1. Introduction=310
7.2.6.2. Construction Contract=311
7.2.6.3. Operations and Maintenance(O&M) Agreement=315
7.2.6.4. Offtake Agreements=316
7.2.6.5. Host-Country Agreements=317
7.2.6.6. Other Project Agreements=318
7.3. Refinancing Project Finance Deals=319
CHAPTER 8. Credit Risk in Project Finance Transactions=321
Introduction=321
8.1. The Basel Committee's Position on Structured Finance Transactions(Specialized Lending)=326
8.1.1. Classes of Transactions Included in Specialized Lending=328
8.2 Rating Criteria for Specialized Lending and Their Application to Project Finance=329
8.2.1. Financial Strength=329
8.2.2. Political and Legal Environment=329
8.2.3. Transaction Characteristics=330
8.2.4. Strength of Sponsors=330
8.2.5. Mitigants and Security Package=330
8.2.6. Summary of Grading Criteria=331
8.3. Rating Grade Slotting Criteria of the Basel Committee and Rating Agency Practices=331
8.4. The Basel Accord and the Treatment of Credit Risk for Project Finance Loans: Is Project Finance More Risky Than Corporate Loans?=333
8.5. Empirical Studies on Project Finance Defaults and Recovery Rates=336
8.5.1. International Finance Corporation Study=336
8.5.2. The International Consortium of ABN AMRO, Citibank, Deutsche Bank, and Société Générale=338
8.5.3. Recent Developments in the Empirical Analysis of Project Finance Default and Recovery Rates=340
8.5.3.1. Moody's(October 2010)=341
8.5.3.2. Standard and Poor's(August 2007 and October 2010)=346
8.6. Introduction to the Concepts of Expected Loss, Unexpected Loss, and Value at Risk=347
8.7. Defining Default for Project Finance Deals=353
8.8. Modeling the Project Cash Flows=355
8.8.1. Defining a Risk Assessment Model=355
8.8.2. Identifying Project Variables and Key Drivers=355
8.8.3. Input Variables : Estimation and Data Collection=356
8.8.4. Estimating Project Cash Flow and Valuing Results=364
8.9. Estimating Value at Risk through Simulations=364
8.10. Defining Project Value in the Event of Default=367
8.10.1. Deterministic versus Stochastic LGD Estimates=367
8.10.2. LGD Drivers : The Value of Underlying Assets versus Defaulted Project Cash Flows=368
8.10.3. Restructuring versus Default=368
CASE STUDY 1. Cogeneration 1=371
1.1. The Situation=371
1.2. The Production Process=371
1.3. The Sponsors of the Deal=373
1.4. The Agreements Underpinning the Deal=373
1.4.1. Cogeneration 1 Construction Agreement=373
1.4.2. Deasphalting Plant Construction Agreement=374
1.4.3. Operation and Maintenance Agreement=375
1.4.4. Energy Sale/Power Purchase Agreement=375
1.4.5. Steam Purchase Agreement=375
1.4.6. Feedstock Supply Agreement=375
1.4.7. Oxygen Supply Agreement=376
1.5. The Financial Structure=376
1.6. Final : In Arrigoni's Office=376
CASE STUDY 2. Italy Water System=377
Introduction=377
2.1. The Business Plan of the Project=377
2.2. Assumptions=377
2.2.1. Timing=378
2.2.2. Inflation Index=378
2.2.3. Depreciation=378
2.2.4. Interests and Financial Costs=378
2.2.5. Interest on Positive Cash Balances=379
2.2.6. Value-Added Tax(VAT)=379
2.2.7. Taxes=379
2.2.7.1. IRES(Corporate Income Tax)=379
2.2.7.2. IRAP(Regional Tax on Productive Activities)=379
2.2.8. Working Capital=379
2.2.9. Debt Service Reserve Account=380
2.3. Capital Expenditure=380
2.4. Financial Requirement and Sources of Financing=380
2.4.1. Financial Sources=380
2.4.1.1. Debt Facility=381
2.4.1.2. VAT Revolving Facility=382
2.4.1.3. Guarantee Facility=382
2.4.1.4. Equity=383
2.4.1.5. Public Grants=383
2.4.1.6. Cash Flow During Construction=383
2.5. Operational Period=383
2.5.1. Operation of the Existing Water System=383
2.5.2. Operation of the New Water Supply and Treatment Systems=384
2.5.3. Operation of the Two Hydroelectric Plants=384
2.6. Economic and Financial Ratios=385
CASE STUDY 3. Quezon Power Ltd. Co.=387
3.1. The Project=387
3.1.1. Project Sponsors, Ownership Structure, and Basic Terms of Financing=387
3.1.2. The Contractual Structure of Quezon Power Project=390
3.1.2.1. Power Purchase Agreement(PPA)=390
3.1.2.2. Leases=392
3.1.2.3. Transmission Line Agreement=392
3.1.2.4. Engineering, Procurement Contract(EPC), and Construction Management=393
3.1.2.5. Management Service=393
3.1.2.6. Operation and Maintenance(O&M)=393
3.1.2.7. Coal Supply Agreement=393
3.1.2.8. Wheeling Agreement=394
3.2. The Problem=394
CASE STUDY 4. Milan Metro Line 5=395
4.1. Background of the Deal=395
4.2. Description of the Works=396
4.3. Project Sponsors=398
4.3.1. Astaldi S.p.A(Astaldi)=398
4.3.2. Torno Internazionale S.p.A(Torno)=399
4.3.3. AnsaldoBreda S.p.A(AnsaldoBreda)=399
4.3.4. Ansaldo Trasporti-Sistemi Ferroviari S.p.A(Ansaldo)=399
4.3.5. Alstom Ferroviaria S.p.A(Alstom)=399
4.3.6. Azienda Trasporti Milanesi S.p.A(ATM)=400
4.4. The DBOT Concession Contract and Supplementary Contract(Variante Garibaldi)=400
4.4.1. Purpose and Duration=400
4.4.2. Concession Holder's Grants and Fees=400
4.4.3. Revision of the Concession=401
4.4.4. Penalties=402
4.4.5. Contract Termination=403
4.5. Construction Contract and Operations & Maintenance Contract=404
4.5.1. Construction Contract=404
4.5.2. Operations & Maintenance Contract=405
4.6. Financial Structure=406
Appendix 1. The Structure and Functioning of the Simulation Model=409
Introduction=409
A1. Breakdown of the Financial Model=409
A1.1. Assmpt.(Assumption) Sheet=410
A1.2. Sponsor_Cap Sheet(Capex Analysis)=412
A1.3. Sensitivities Sheet=413
A1.4. Capex Sheet=414
A1.5. Life Cycle Costs Sheet=415
A1.6. VAT Sheet=416
A1.7. Depreciation Sheet=417
A1.8. Grant Sheet=418
A1.9. Energy_Rev Sheet=419
A1.10. Water_Rev Sheet=420
A1.11. Opex Sheet=421
A1.12. P&L(Profit & Loss) Sheet and SP(Balance Sheets)=422
A1.13. IRES(Italian Corporate Income Tax) and Tax Sheets=422
A1.14. Work_Cap Sheet=425
A1.15. Guarantee_Fac Sheet=425
A1.16. Debt Sheet=425
A1.17. Equity Sheet=429
A1.18. Cash Flow Sheet=430
A1.19. IRR(Internal Return Rate) Sheet=431
A1.20. Summary Sheet=432
Glossary and Abbreviations=433
References=445
Index=453