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Advanced Project Financing: Structuring the Risks

DateSep, 2000
Pages294
Price / format€210 / Hard Copy

€210 

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Abstract:
 "...The wealth of information will be appreciated by hardened industry professionals and by relative newcomers. Tinsley is to be congratulated on this outstanding work…" Michael W. Good, Managing Partner, Project Risk Advisors Ltd – London.

This book is an indispensable guide to the risks encountered in a project financing. Written by Richard Tinsley, author of the best-selling self-study guide Project Finance, the book begins by identifying the key risks in project finance. From this the reader is presented with 214 real-world case studies in which each choice of risk structure is explained and assessed. Starting with a cashflow analysis the book looks at the best structures and funding techniques to mitigate and avoid risk. Deal diagrams are used to illustrate the many alternative project finance structures that can be considered. Furthermore, allied financial measures are explained and demystified.

This book is an invaluable guide for the project finance practitioner, enabling them to dissect any project finance and find the appropriate risk structuring.

About the Author

Richard Tinsley is President of International Advisory & Finance, a Project-Finance boutique, headquartered in Sydney, Australia. His career includes 29 business cards from such fields as quantity surveying in the construction industry, to economics and engineering in the resources sector, project analyst and negotiator in the automobile industry, to professional independent director, chief financial officer, and managing director of publicly-listed companies. Australia is the fifth country in which he has lived permanently.

All this culminated in a 25-year career in Project Financing in each sector of the business – commercial bank (United States and Australia), merchant bank (London), investment bank/Wall St (Sydney office), and now international Project-Finance advisor. He usually is at the treasurer's/government's side negotiating against/with the bankers and institutions.

An author on many aspects of minerals economics and Project-Finance, he first expounded the risk
system of this book to a Vancouver conference in 1982. Since then he has been tracking the application of this risk system and has an almost perfect record.

The deals he has declined go wrong! Although some of the deals approved have stumbled, the tight structure inherent in Project Finance has enabled the recovery of the workouts. Because of his extensive knowledge of documentation, he is often referred to by his colleagues as a 'bush lawyer', content to draft just about anything including acts of parliament for the benefit of his project.

A knowledge of the complete structure has also proved invaluable in negotiations as well as in making sense of the myriad inputs to the Project-Finance process. The lawyers he has worked with know that there is no such phrase as 'Let's leave it to the lawyers. 'One Thank You he truly appreciates after a two-week negotiating session against one of Australia's foremost Project-Finance solicitors was 'You never once used 'Trust me' in these negotiations.'

Trained as an engineer and economist and with a background in the construction industry, he nevertheless admits to having to retrain his engineering attitude to analysis. This risk system was the catalyst since it is the trade-offs that count, not so much the precision of the spreadsheet. The deal must have strong incentives for both sides to make it work. In this respect too, he realised early that it is people who do deals, not spreadsheets. However, a good knowledge of spreadsheet mathematics and a better feel after some 50,000 or so spreadsheet runs by now, mean that the solution set that will work in a Project Finance can be identified much more quickly by use of this systematic approach to risk and structure. He no longer leaves the entire modelling job to the analysts either!

This interest has now extended to writing a Practical Introduction to Project Finance and a self training CD-ROM, A Guide to Project Finance, both for Euromoney. The development of generic Project-Finance modelling and risk matrices is the next field of endeavour.




Project finance is an attractive financing alternative enabling project sponsors to shed risks to the banks or capital debt markets. To the owner or parent entity, the non-recourse aspect is prized since it allows that company or group to go on to develop other projects – to become a serial developer.

A knowledge of the risks and the structures of project finance to handle risk are paramount in achieving the best deal for both sides. This book provides a risk system which can be applied to any project in any industry sector, indeed the financing of any venture. It also outlines each structuring solution that would be acceptable to the project financiers.

This book examines the structures and risk mitigants that can be considered to address the sixteen classes of risks in project-finance business. The text is supported by extensive case examples, exhibits, glossary, and index.




Table of contents:
 Preface

Author biography

List of case studies
List of exhibits

Introduction
Project finance's origins
Project finance defined
Project finance structuring
Advantages
Disadvantages
Summary

Chapter 1: Structuring stages

Technical feasibility stage
Financial feasibility stage
Market feasibility stage
Use in mergers and acquisitions
Project concept
Summary

Chapter 2: Funding sources

Local currency funding
Capital markets
Developers
Mezzanine
Merchant financing
Islamic lending
Governments–public-private partnerships
Leasing
Commodity-based lending
Equity
Summary

Chapter 3: Cashflows

Modelling aspects
Cashflow controls
Modelling cashflows
Summary

Chapter 4: Financial advisers

Advantages and disadvantages
Need for an adviser
Advisory costs
Who are the financial advisers?
Summary

Chapter 5: Credit ratios

Debt service cover ratio
Residual
Interest cover ratio
Principal cover ratio
Present value ratios
Loan life ratio (LLR)
Project life ratio (PLR)
Residual life ratio (RLR)
Debt:Equity ratio (D:E)
Payback
Discount rate
Leveraged IRR
Choice of discount rate
Multi-tranche ratios
Accounting ratios
Summary

Chapter 6: Risk systems

Insurance
Statistical
Risk modellers
Checklist
Contractual/Jigsaw
Project finance

Chapter 7: Sector profiles

Sector features
Analysis by sector
Summary

Chapter 8: Structures

Risk
Risk division
Document matrix
Interest
Principal
Drawdown styles
SPV
Mezzanine
Subordinated debt
Working capital
Bridge loans
Multi-tranche
Commodity funding
Contract structures
Trigger structures
Financed structures
Study structure
Avoided
Summary

Chapter 9: Due diligence

Systematic review
The feasibility process
Selection of experts/engineers
Customary reviews
Telecoms subscriber studies
Common sense

Chapter 10: Supply risk

Contract structures
Trigger structures
Financed structures
Study structures
Structures
Summary

Chapter 11: Market risk

Market-price
Contract structures
Trigger situations
Study techniques
Summary

Chapter 12: Foreign exchange risk

What percentage to structure?
Contract structures
Parallel loans
Barter
Trigger structures
Avoided
Study
Summary

Chapter 13: Operating risk – technical component

Contract structures
Trigger structures
Financed structure
Study structures
Summary

Chapter 14: Operating risk – cost component

Contract structures
Trigger structures
Financed structures
Study structure
Avoided
Summary

Chapter 15: Operating risk – management component

Contract structures
Trigger structures
Study
Summary

Chapter 16: Environmental risk

Contract structures
Trigger structures
Financed structures
Study
Avoided
Summary

Chapter 17: Infrastructure risk

Contract structures
Studies
Summary

Chapter 18: Force majeure risk

Acts of nature
Acts of man(kind)
Acts of government
Impersonal acts
Trigger structures
Studies
Summary

Chapter 19: Completion risk

Completion test
Contract structures
Trigger structures
Financed structures
Study approach
Sector completion protocols
Summary

Chapter 20: Engineering risk

Design/calculations
Study

Chapter 21: Political risk

Definitions
Government supports
Treaty protection
Contract structures
Trigger structures
Financed structures
Study sources
Avoided

Chapter 22: Participant risk

Sponsor pre-completion
SPV
Trigger structures
Study route
Avoided
Summary

Chapter 23: Interest rate risk

Contract structures
Trigger structures
Summary

Chapter 24: Syndication risk

Roles
Choice of banks and placements parties
Pricing
Disclosure
Contract structures
Study structures

Chapter 25: Legal risk

Legal regime
Concept of law
Enforcement
The courts
Solicitors/lawyers
Contracted structures
Trigger structures
Study structures
Avoided
Summary

Appendix 1: Differing definitions
M&A
Securitisation
Lawyers
Project financiers
Appendix 2: Typical owner controlled insurance programme (OCIP)
Section 1 Owner's project company insurance coverages – construction phase
Section 2 Contractor's insurance requirements – construction phase
Section 3 Owner's project company insurance coverages – operational phase
Glossary
Index




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