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Financing PPPs: Project Finance October 2007. P. 2 Index Section I. Brief Project Finance Introduction Section II. Risk Matrix Section III. Case study:

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Presentation on theme: "Financing PPPs: Project Finance October 2007. P. 2 Index Section I. Brief Project Finance Introduction Section II. Risk Matrix Section III. Case study:"— Presentation transcript:

1 Financing PPPs: Project Finance October 2007

2 P. 2 Index Section I. Brief Project Finance Introduction Section II. Risk Matrix Section III. Case study: Cuenca Road Network Program

3 Project Finance Section I Brief Project Finance Introduction

4 P. 4 Definition of Project Finance Definition: A form of financing projects, primarily based on claims against the financed asset or project rather than on the sponsor of the project. However, there are varying degrees of recourse possible. Repayment is based on the future cash flows of the project. Sección I Project Finance Introduction

5 P. 5 Financing Structure Shareholders Construction Joint Venture Operating Company CapitalDividends + interest Principal + Interest Payment Payment CV + CF Insurance company Service supplier 1Service supplier 3 Service supplier n Service Contracts Project Company (SPV) AdministrationBanks Concession Agreement Financial contracts Construction Contract Operating & Maint. Contract Sección I Project Finance Introduction

6 P. 6 Calendar: Process duration: 4 months Feasibility Study Contracts & Risk management Economic analysis and Financing structure Financial Advisor: Banks Financial Structure Phase I Risk analysis Phase II Financial closing Phase III Term Sheet & IM Arrangers: Term Sheet & Contracts negotiation Financial closing Participants: Syndication Sección I Project Finance Introduction

7 P. 7 BBVA Project Finance Experience Sección I Project Finance Introduction Leading Project Finance Bank in Spain BBVA enjoys a leading position in project financing in Spain: -#1 Arranger in #1 Arranger in #1 Arranger in #1 Provider in #1 Financial Advisor in 2003 Leading Project Finance Bank in the World BBVA has played a top level role in the project financing in the world: -#2 Transport Mandated Lead Arranger in #3 Wind Mandated Lead Arranger in #4 Water & Sewage Mandated Lead Arranger in #10 Power Mandated Lead Arranger in #1 Financed Advisor in #2 Western Europe Mandated Lead Arranger in #6 Eastern Europe Mandated Lead Arranger in #10 North America Mandated Lead Arranger in 2006

8 P. 8 BBVA Project Finance Experience Sección I Project Finance Introduction Roads BBVA has extensive experience financing the construction of new build motorways and the acquisition of existing roads. For example: -BBVA has acted as Mandated Lead Arranger on the acquisition of most of the major recent motorway privatisations including the EUR 370 million Ionia Odos Road Project (2007), the EUR 1.06 billion Variante Sur Metropolitana (2006), Euro 8.3 billion APRR privatisation in France (2006), the USD 3.8 billion Indiana Toll Road (2006), the USD 1.8 billion Chicago Skyway (2004), the Euro 1.6 billion ENA privatisation in Spain (2003) and the CAD 2.3 billion ETR-407 acquisition financing in Canada (1999) -BBVA has acted on some of the most innovative new build financings in North America and Europe including the Euro 232 million Eurolink N4/N6 - the first PPP toll road in Ireland (2003), the NOK 3.2 billion E18 motorway in Norway (2006) and the USD 400 million SR-125 (2003) in San Diego, the first private toll road in the US involving TIFIA funding BBVAs experience includes real toll roads, shadow toll roads and availability based roads BBVA has extensive experience in Latin America. Portfolio includes projects in Argentina, Chile, Colombia and Mexico. BBVA is one of the worlds leading arrangers of infrastructure financings. Other Transportation BBVA has acted as Mandated Lead Arranger on the financing of transportation infrastructure projects including high speed rail (TP Ferro high speed rail link between Span and France), light rail (Metro de Tenerife and Woolwich Arsenal Docklands Light Railway), container ports (Puerto de Málaga), airports (BAA), parkings (Icon Parkings) and passenger interchange stations (Intercambiador de Castilla).

9 Project Finance Section II Risk Matrix

10 P. 10 Main risks Risk Matrix Building & Operational Risk: Building risk Demand risk Operating risk Financial & Economic Risk: Section II Interest rates risk Inflation risk Syndication risk

11 P. 11 Risk mitigation Cost Construction ContractFixed price DelayConstruction Contract Penalty clause Technical performanceConstruction Contract Penalty clause OperatingOperation Contract Technical advisor will control the operation TrafficConcession contractFix tariff Tariff / Law Concession contract Tariff will compensate traffic and law changes Force MajeureConcession contract Concession agreement will cover these risk Political riskConcession contract Concession agreement will cover these risk Contracts will provide mechanisms to mitigate the risk: Mitigation mechanismContract Contractual structure & risk mitigation Risk: Section II Risk Matrix

12 P. 12 Other risk mitigations Sponsors Technical & Financial solvency. EPC Contract. Long warranty periods. Penalty clauses. Operating & Maint. Contract. Extension definition. Length. Cost limits. Due diligence. External advisors Insurance program Section II Risk Matrix

13 P. 13 Advisors & Insurance Program Insurance program External Advisors Traffic Advisor Insurance Advisor Legal Advisor Technical Advisor Model Auditor Construction Operating Damages ALOP Civil liability ALOP Civil liability Force Majeure Section II Risk Matrix

14 Project Finance Section III Case study: Cuenca Province Road Network

15 P. 15 Project Description Sección III Construction and maintenance of 458 km of roads in Cuenca province. Concession term: 17 years. Investments: Construction period: Eur 45 million investment Operational period: Eur 30 million CAPEX Shadow toll scheme. Concession company: Conquense de Infraestructuras S.A. Five shareholders who are the main construction companies in the province. Concession contract with the local authority. Case Study

16 P. 16 Principal participants & contracts Excelentísima Diputación Provincial de Cuenca BBVAArranger EptisaTechnical advisor Cuatrecasas / DLALegal advisor Heath Lambert Insurance advisor Tool Ulle Demand advisor PWCModel auditor Other/AdvisorsSponsors/Shareholders 5 Construction companies Construction contract with a Joint Venture of all concession company shareholders. Maintenance contract with a company formed by the five shareholders of the concession company. Administrative contracts: concession contract, etc. Insurance contracts Financial contracts: Senior Loan, VAT Loan, Swaps, etc. Contract structure Sección III Case Study

17 P. 17 Structure Sección III Concession Contract Cuenca Local Authority Conquense de Infraestructuras S.A. Construction Joint Venture Conquense de Conservación S.L. Construction Contract Maintenance Contract Banks Financing Contracts Case Study

18 P. 18 Risks and Guarantees Construction period Any construction risk Civil liability Maintenance period Material Damage Civil liability Environment liability Terrorism Construction Risk Contingency Delays in project opening Overcost due to delays Guaranties Sponsors guaranties and penalties Construction Insurance Maintenance Risk Contingency Unable to face debt service Maintenance overcost Guaranties Sponsors guarantees and penalties CAPEX reserve accounts New bank maintenance budgets Contractor guarantees Sponsors experience Proven technology Technological Risk Insurance Risk Sección III Case Study

19 P. 19 Financial Risk Credit risk of the project 100% IRS of outstanding debt during the concession period. Conservative forecast Legal risk Contingencies Cancellation Management Contract Change in tariffs Guaranties Grantor compensation Sección III Case Study Risks and Guarantees

20 P. 20 Other Project guarantees Real Guarantees Asset mortgage commitment Pledges of: Management Contract Project Contracts IRS Contracts Insurance Contracts Pledge of Concession company Fulfill of financial ratios Sección III Case Study

21 P. 21 Project Strengths & Weaknesses Project Strengths Sponsors experience Technical solvency Support of the sponsors Project Weaknesses Legal changes Tariff changes Administrative problems (licenses & permits) Main issues to obtain internal credit committees approvals Suitable financial structure Favorable legal and administrative framework Technological risk guarantees Public interest asset Correct risk distribution Sección III Case Study

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