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Financing Essentials for Public-Private Partnerships United Nations SU/SSC Training Course September 19, 2006
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Financing of Private Public Projects
Role of Financial Counterparty Funding Resource Professional Expertise Project Oversight and Monitoring Objectives of the Financial Counterparty Policy Goals and Objectives Proper Risk- Reward Relationship Market Rates of Return Financial Social Strictly Private & Confidential
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Financing of Private Public Projects
Universe of Financial Counterparties Commercial Banks Investment Banks Multilateral Organizations Development Banks Non-Profit Organizations Local, Provincial and National Governments Multinational Development Companies Pension and Investment Funds Infrastructure Equity Funds Sources of Funding Debt Equity Quasi - Equity Strictly Private & Confidential
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Financing of Private Public Projects Debt Bank Loans Bond Offerings
Domestic or International Public Markets Local or Foreign Currency Denomination Senior/Mezzanine/Subordinated Debt Equity Initial Funding Long Term Investment Change of Control Provisions/Replacement Standards Return Expectations Ongoing Financial Support Strictly Private & Confidential
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Financing of Private Public Projects
Quasi-Equity Cash Contributions Grants Subsidies Support Agreements Guarantees Certain Forms of Debt Strictly Private & Confidential
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Equipment/Rolling Stock
Application of Funds Direct Project Costs Development Costs Design Site Acquisition Construction Equipment/Rolling Stock Strictly Private & Confidential
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Working Capital Reserve Transaction Costs Structuring Fees
Application of Funds Finance Costs Capitalized Interest Reserve Funds Debt Service Reserve Maintenance Reserve Working Capital Reserve Transaction Costs Structuring Fees Commitment Fees Legal Fees Credit Enhancement Fees Financial Advisory Fees Strictly Private & Confidential
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Project Risk Assessment Type of Project Greenfield v. Brownfield
Sector Service Area Mature or Developing Market Project Evaluation and Economics Project Need Sources and Uses of Funds Market Analysis Project Rationale Competition Pricing Structure Market Competitiveness Strictly Private & Confidential
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Project Risk Assessment
Project Financial Forecasts and Sensitivity Analyses Development of Key Assumptions Identification of Sensitivities Analysis of Sensitized Cashflows Revenue Shortfalls Construction Costs Interest Rates Inflation Currency Fluctuation Strictly Private & Confidential
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Legal and Environmental Requirements
Legislation/Regulation/Tax Policy Contract Law Public Private Partnerships Environmental Land Use Other Project Documentation Concession Agreement Construction Contract Operations and Maintenance Contract Supply or Off-take Contracts Strictly Private & Confidential
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Legal and Environmental Requirements
Concession Agreement Term of the Concession Revenue Tail Allocation of Risk Termination Provisions Payment Mechanism Deduction Regime Lenders’ Rights Insurance Provisions Strictly Private & Confidential
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Legal and Environmental Requirements
Construction Contract Fixed Price/Date Certain Types of Technology/Track Record Warranties and Guarantees Construction Performance Support Liability Cap Liquidated Damages Lenders’ Rights Role of Technical Advisor/Scope of Services Contingency Levels Strictly Private & Confidential
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Legal and Environmental Requirements
Operations and Maintenance Contract Scope of Services/Complexity Duration Price/Payment Pass Through of Deductions Benchmarking and Market Testing Provisions Operations Performance Support Strictly Private & Confidential
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Legal and Environmental Requirements
Supply and Off-take Arrangements Duration Terms Price Price Adjustment Mechanisms Financial Documentation Bond Indenture/Loan Agreement Intercreditor Agreement Lenders’ Direct Agreements Strictly Private & Confidential
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Evaluation of Main Project Parties
Borrower Shareholders Construction Contractor and Subcontractors Service Operator(s) Multilateral Agencies Local Authorities Other Public Sector Counterparties Suppliers Off-takers Co-Lenders Advisors Strictly Private & Confidential
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Liens on or Assignment of Various Assets Guarantees Letters of Credit
Project Security Forms of Security Revenue Pledges Mortgages Liens on or Assignment of Various Assets Guarantees Letters of Credit Implicit/Explicit Public Sector Support Strictly Private & Confidential
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Project Security Reserve Funds Types of Reserves Maintenance Reserve
Operating Reserves Dividend Reserves Others Funding Requirements Amounts/Sizing Timing Replenishment Source of Funding Release Tests/Dates Strictly Private & Confidential
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Design and Construction Risk Operating Risk Commercial Risk
Risk Evaluation Design and Construction Risk Operating Risk Commercial Risk Sufficient Demand Pricing Levels Affordability Collection Regulatory Risk Strictly Private & Confidential
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Macroeconomic and Sovereign Risk Legal Risks Financing Risk
Risk Evaluation Macroeconomic and Sovereign Risk Legal Risks Financing Risk Debt Structure Termination/Prepayments Foreign Exchange/Currency Market Risks Interest Rate Inflation Sensitivities Currency Volatility Strictly Private & Confidential
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Evaluation of the Risks and Mitigants
The Decision Evaluation of the Risks and Mitigants Identification of the Strengths and Weaknesses of the Transaction Risk v. Reward Analysis Decision Processes Governmental Investment Banks Commercial Banks Multinational Organizations Equity Investors Strictly Private & Confidential
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Construction Support Package Operator Support Package
Business Terms Security Package Construction Support Package Operator Support Package Gearing Requirements Drawdown Schedule Term of the Financing Flow of Funds Representations and Warranties Conditions Precedent Strictly Private & Confidential
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Interest Coverage Ratios
Business Terms Financial Covenants Interest Coverage Ratios Debt Service Coverage Ratios (historical and projected) Loan Loss Coverage Ratio Dividend Payout Restrictions Events of Default/Remedies Credit Ratings Derivative Products Strictly Private & Confidential
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Drawdown Process and Procedures Interest Rate Resets and Rollovers
After Financial Close Drawdown Process and Procedures Interest Rate Resets and Rollovers Repayments and Prepayments Portfolio Review and Monitoring Construction Monitor Monthly/Quarterly/Annual Financial Reporting Lifecycle Costs Covenant Compliance Insurance Advisor Waivers/Consents/Amendments Strictly Private & Confidential
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