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Tailored Debt Structures

Applying PF Technics:-

Common thesis operating cash flows are reasonably predictable; well structured
contractual frame work & rate covenants; PF candidates significant cashflow
volatility ( primary mitigate reduce leverage )
New Approach:-
Repayment schemes are being tailored to the actual receipt rather than the
projected receipt of cash flow or amortisation is simply postponed till refinancing;
properly structured, the reduction in leverage can be minimised without a significant
sacrifice of credit quality;
Rating approach also tailored to transaction DSCR ( cads / ds), LLCR ( npv of money
available over loan life / senior debt ), PLCR ( npv of money available over project life
/ debt bal; ultimate recovery analyses over a set timeframe.
Deferral of amortisation ( stable cashflow over long-term ; severely depressed in
occasional year eg major repairs, retrofit resulting in Cape & a loss of revenue during
implementation ; scheduled debt service may be deferred during periods of low cash
flow prior to the sponsor receiving future equity distributions the deferred
principal, interest & penalty interest must be fully paid ;
Deferral Rights only for a Limited Duration:-
Upon protracted payment default , remedies of right to accelerated the debt and
foreclose on the assets ;
Rating of Toll Roads:-
Long dated callable capital appreciation bonds with bank ended legal
maturities ; pre packaged restructuring ; LLCR analysis , rate covenant set up,
forward looking distribution test that locks up cash and forces prepayment
should the forward looking LLCR fall below as set floor.
Assumption:- Bullets with Refinancing ( Single or Multi Tranche Bullet Maturities
with a Refinance Assumption
eg toll roads ; reduction in near term debt servicing commitments with
minimal scheduled amortisation ( if any ) prior to maturity ; once the project has
demonstrated opening history , the bullets can then be refinanced at terms &
rates more consistent with projects cashflow potential , which can be better or
worse than originally projected.
Many Forms of Refinance Risk:-
Equity or cash-lock up provisions ; affirmative covenants requiring timely
refinancing efforts and the use of soft bullet maturities ( scheduled maturity
prior to legal maturity )
Cash Sweeps ( Long term price exposure / volatility , eg Oil & Gas ; Term B loan
(between secured & Mezzanine ):-
Prior to making equity distributions , a defined % of available funds must be
applied to prepay the principal balance ; variations
A pattern of diminished cash flow will trigger the cash sweep provision in order
to expedite the full repayment prior to maturity ; CS inadequate for a project
with meaningful technology risk or with diminished long term prospects )
Suitable where long term debt is not available