Remind:

Offtakes market risks are not usually covered by insurance/in guarantees

Securing offtakes by guarantees or insurance is not very common

Question 1
1 Seven Parameters to consider when auditing an offtake contract?
-

Price (Fixed or floating with indexed)

Volume of offtake (Comparing contracted volume and total output, and
fully output offtake or not, if not how many portions of the output would be
offtake)
Status of the off-taker (state owns or not)
CPIs indexation (because it is a long-term financing)
Checking the offtake construction: Take or pay or Take and pay
Tenor of offtake contract
Checking whether the currency of the offtake contract, matching or
mismatching the currency of the debt and the currency of the equity

2 Key securities & collateral to include when pitching on a PPP infrastructure

finance?
Pledge of all receivables and potential assets of SPC, namely the future cash
payments by the state authority (offtake)
Pledge of the future dividends
Pledge the share of the SPC
Pledge and assign all the key contracts (The PPP contract, construction EPC
contract, O&M contract) the banks would step in and apply another one, if
necessary (any parties has defaulted)
Mortgage on the land and Construction work, when it relevant and legally feasible
(The assets should be under the case of unmovable (train traces and real way),
and in certain geography cities, local legal systems who do not recognize the
mortgage, do not have mortgage law)
3 You are an investment bank analyst preparing a pitch for a major renewable
energy project. Which type of data Room will you require from your client prior to
pitching?
Capital shareholding structure of the future SPV
Test all the contractors performance in the similar industries and credit scoring,
profits and financial reports of last three years
The business plan with the forecasting future cash flow

The SPC future tax payment (During the concession contract, it might include the
tax treatment however it is in the amid of the project, which has not started yet)
If there is clean Building Apartment (Clean Construction Project)
Clean here means free of recourse of potential acclaim by local communities
against the project
An independent technical audit in specially line of efficiency productivity
The productivity level as assumed in the sponsors model, which the project
would be viable or not
The relative economic viability (for given a renewable energy compared with
other sources of energy), especially in the current oil price structure which is low
Look at the offtaker structure as soon as you have from a public authority a fixed
offtake price,
Regulated market and also a market with very quick changes, level of supports
by public authority
Potential collateral and securities (in Renewable energy, usually dont have too
much to pledge, dont have land to take the mortage)
Last will be the currency exposure.

Record 17mins

4 Which 4 occurrences are usually insured under political risk insurance?

Nationalization
Currency inconvertibility and Currency transfer risk
24min Concession contract
Forces Maujour

Who is Political Risk?

MLA

5 How is a PF cash waterfall structured?

Priorizatation of the project cash flows, usage payments, the corporate tax at
SPC level and other potential tax will have to be paid first, then the lender

following subordinate ranking, senior, junior and if any mezzanine) The last one
is Dividends (usually before payments of dividends occur, there is one step in
between, DSRA(Debt service reserve accounts) are usually often at pledge, what
is the use for such DSRA? (28min 20s) Mainly for strong maintenance, mainly
unexpected potential maintenance Capex that would cost more than expected.
Dividend payments to the sponsors knowing that the dividends are always
pledged affront as we see at the early.

6 Difference between Concession and PPP projects structures?

In PPP market risk
BOT the state has the ownership only at the transfer stage, before that the
ownership is in the hand of SPC.
Both of them, mostly there will be a transferring ownership at the end of the
project.
There is no market risk (political risk)
In PPP project, is less dependent on business hazard, for the SPC.
Off balance sheet, the structure, for the public authority (tenant)
37 min
The public authority in the PPP, as a leaser, of to be built and operated by a
private consortium of sponsors.
In a ppp, you have basically a lease structure, whereby the public authority is
leasing, and SPC is the lessor of a given to be built and operated infrastructure,
meaning that instead of an offtaker, you have a tenant structure, the public
authority becomes the tenant structure, balance sheet white for the public
budget, PPP might be changing. After one or two decades of PPP, it is the shadow,
when you lease with a zero liquidity value at the end, indeed its an expense.
Performance quatierier.

Some PPP still have the market risk, the risk level usually links to or depends on
the status of the rent structure.

7 Who (which type of institutions) are the new project, financing sources in the
current Basel 3-regulated debt markets?
Long term funding structure

Main sources: which relatively has a long term balance sheet

Higher solvency and liquidity constrainBasel 3 for investment banks, project
finance banks
Asset managers
Insurance companies (Life insurance companies especially, because they have
this kind of long term funding sourses)
Pension funds (had some troubles at recent years)
Solvent funds (Norway very much so, most of solvent funds would be more on the
equity side, some of might set out the infrastructure and establishing debt funds,
two type of project-mainly in infrastructure, energy especially new renewable
energy, and real estate as well.)

8 When and why is offshore SPCs used in Project Finance?

Most of the earning are outside of the projects country, most of the earnings are
paid are reignited from off takers
Offshore structure can be a way to reduce political risks sometimes
For tax optimizing (tax propercies), this is more and more scrutinize by central
bank and bank of authorities. (SPC mostly in Finland)
Question 2
1 When carrying out a sensitivity analysis on your (sponsor) CF model, how you
will test yourself:
1. Commodity risk (in a mining project)
3min51
What it is
Price of the volatility on the output
Stress test based on the historical value
Where you can find the historical value: Whether it is siginical, Bloomberg,
International commodity stock exchange
Which line in the model will be impacted: the output price, with some
signisity price that you can integrate in your model based on the historical
value

2. E&S risk?
Adding the reserve for implemental and advermental taxes or penalties.
Increasing budget for ex-preparation, building new infrastructure for the
law populations

Also, there might be negotiating between host country and the SPC sponsor,
some projects even with a strong NGO action, so better take a conservative and
higher budget with some potential E&S costs, in certain dense population areas.
Additionally, it would have a DSRA (debt service reserve account),specially
for E&S potential or exceptional costs, adding in the model.
3. Construction risk
What if analysis:
For example:
What if capex is 10% or 15% higher than the original budget made by
sponsors,
What if the time of operation (time for cash in) starts delay?
Make the construction time longer or delay in delivering
What will be impacted on the DICR, knowing that usually during the
destruction period, you will accumulate interest and capital repayment, to
start repayment only when operation starts.
4. Maintenance risk
Make a reserve with the DSRA, for Replacement or maintenance
equipment, expenditures, additional costs & any unexpected costs
5. Climatic risk (in a renewable energy project)?
Build up a productivity scenario by fixing the efficiency line based on
historical climatic exposure (for example sun or wind exposure)
Through measurement of P50- P80 values in probability functions
2 What are major risks involved when financing a transport infrastructure in an
exotic country? Define:
1. The risk occurrences and
Political Risk (MLA, ECA, Insurance company, or commercial banks)
CIT
Country war or violence activity (ie. Terrorism)
Breach contract (offtake contract) MLA if it would like to
Infrastructure RiskProper agreements, Concession contract (Host country or
public authority to build up surrounding infrastructures)
Construction Risk
Traffic Risk or Market Risk
Maintaining Risk
Supply Risk

2. Risk absorbers

3 What are the

Equator principles?

Compliance work for financial institution to mitigate E&S risk

4 Calculate the borrowing capacity of a given BOT infrastructure project assuming
several loan drawdowns during construction and with given values of Debt, Cost
and maturity of Debt, Equity, Tax ect.
Financing plan Chapter 9

]
5 Differences between ECAs and MLAs in (1) shareholding (2) mission (3) policy
instruments
ECA would be either state owned or private, its a national institution
Multilateral, shareholders of MLA with different geographical area
Mission:
ECA: Sponsors
Cover two or three risks

Commodity risk, political risk, some even cover the

MLA:
Supporting development for emergency country, support the unmatrual market
and develope infrastructure
ECA: Insure, guarantee, finance
MLA: Finance, insurance or guarantee, support and guarantee for the bond
issuing, bring equity, advice service to the host country
6 How to assess the borrowing capacity of a given project, assuming periodic
drawdowns during construction?

Question 3
1 Give the meaning of these Project Finance acronyms:
1. EPC
Engineering, procurement and construction, is a common form of contracting
arrangement within the construction industry. Under an EPC contract, the
contractor designs the installation, procures the necessary materials and
builds the project, either directly or by of the work. In some cases, the
contractor carries the project risk for schedule as well as budget in return for
a fixed price, called lump sum turnkey(LSTK) depending on the agreed scope
of work.
2. PPA
Power purchase agreement
3. SPC
Special Purpose Company
4. MLA (2)
Multilateral Agency
Mandated leading arranger
5. CPI
Consumer Price Index
2 Why are project bonds developing as projects source of funding?
Under Basel 3, Banks are short of long term funding.
The market becomes high liquidity, very low cost so that bond issue is cheap
Some asset managers, life insurance are looking for diversification in their
portfolio, currently are more eager to invest into these projects than the past.

3 The European investment Bank: Role and policy instruments on the current
Project Finance markets
MLA
4 Under current Basel 3 constraints, European investment banks strictly monitor
their WACC and apply a RAROC to each project loan that they grant. What do
these two acronyms mean and why do these banks take such actions?
WACC: weighted average cost of capital
RAROC: Risk adjusted return on capital
Mainly risks are tested through the Basel 3
Low solvency, lending will be very much question of having sufficient liquidity,
and having sufficient solvency. Therefore each transaction will prior to being
approved by a bank credit comment will have to meet a minimum expected
return on capital after adjusted risk, related to Basel 3, the main risk matrix.
Asset liability management tool, will be there
Comply with Basel 3
5 Key securities when financing a crude oil concession?
Pledge and receivables

6 Why is it more accurate to take the Free Cash Flows rather than the CFADS
When testing projects cash flow models?

7 How would you structure the (1)Pricing and (2) amortization of toll road BOT
project loan in Canada?