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Financing PPPs: Project Finance

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Presentation on theme: "Financing PPPs: Project Finance"— Presentation transcript:

1 Financing PPPs: Project Finance
October 2007

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

3 Section I Brief Project Finance Introduction

4 Definition of Project Finance
Project Finance Introduction 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

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

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

7 BBVA Project Finance Experience
Project Finance Introduction Leading Project Finance Bank in Spain BBVA enjoys a leading position in project financing in Spain: #1 Arranger in 2006 #1 Arranger in 2005 #1 Arranger in 2004 #1 Provider in 2003 #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 2006 #3 Wind Mandated Lead Arranger in 2006 #4 Water & Sewage Mandated Lead Arranger in 2006 #10 Power Mandated Lead Arranger in 2006 #1 Financed Advisor in 2006 #2 Western Europe Mandated Lead Arranger in 2006 #6 Eastern Europe Mandated Lead Arranger in 2006 #10 North America Mandated Lead Arranger in 2006 Sección I

8 BBVA Project Finance Experience
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 BBVA’s 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 world’s 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). Sección I

9 Section II Risk Matrix

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

11 Risk mitigation Risk Matrix Contracts will provide mechanisms to mitigate the risk: Contractual structure & risk mitigation Risk: Contract Mitigation mechanism Cost Construction Contract Fixed price Delay Construction Contract Penalty clause Technical performance Construction Contract Penalty clause Operating Operation Contract Technical advisor will control the operation Traffic Concession contract Fix tariff Tariff / Law Concession contract Tariff will compensate traffic and law changes Force Majeure Concession contract Concession agreement will cover these risk Political risk Concession contract Concession agreement will cover these risk Section II

12 Other risk mitigations
Risk Matrix 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

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

14 Section III Case study: Cuenca Province Road Network

15 Project Description Case Study 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. Sección III

16 Principal participants & contracts
Case Study Sponsors/Shareholders Other/Advisors 5 Construction companies Excelentísima Diputación Provincial de Cuenca BBVA Arranger Eptisa Technical advisor Cuatrecasas / DLA Legal advisor Heath Lambert Insurance advisor Tool Ulle Demand advisor PWC Model auditor Contract structure 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. Sección III

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

18 Risks and Guarantees Construction Risk Insurance Risk Maintenance Risk
Case Study Construction Risk Insurance Risk Contingency Delays in project opening Overcost due to delays Guaranties Sponsors guaranties and penalties Construction Insurance Construction period Any construction risk Civil liability Maintenance period Material Damage Environment liability Terrorism Maintenance Risk Technological 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 Sección III

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

20 Other Project guarantees
Case Study 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

21 Project Strengths & Weaknesses
Case Study 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


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