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Principles of Project Finance, 2nd Edition

Book Description

The Second Edition of this best-selling introduction for practitioners uses new material and updates to describe the changing environment for project finance.  Integrating recent developments in credit markets with revised insights into making project finance deals, the second edition offers a balanced view of project financing by combining legal, contractual, scheduling, and other subjects. Its emphasis on concepts and techniques makes it critical for those who want to succeed in financing large projects.  With extensive cross-references and a comprehensive glossary, the Second Edition presents anew a guide to the principles and practical issues that can commonly cause difficulties in commercial and financial negotiations.



    • Provides a basic introduction to project finance and its relationship with other financing techniques
    • Describes and explains:
      • sources of project finance
      • typical commercial contracts (e.g., for construction of the project and sale of its product or services) and their effects on project-finance structures
      • project-finance risk assessment from the points of view of lenders, investors, and other project parties
      • how lenders and investors evaluate the risks and returns on a project
      • the rôle of the public sector in public-private partnerships and other privately-financed infrastructure projects
      • how all these issues are dealt with in the financing agreements

Table of Contents

  1. Cover image
  2. Title page
  3. Table of Contents
  4. Copyright
  5. List of Tables
  6. List of Figures
  7. Chapter 1. Introduction
  8. Chapter 2. What is Project Finance?
    1. §2.1 Introduction
    2. §2.2 Definition and Basic Characteristics
    3. §2.3 Development of Project Finance
    4. §2.4 Elements of a Project-Finance Structure
    5. §2.5 Examples of Project-Finance Structures
    6. §2.6 Why Use Project Finance?
  9. Chapter 3. Project Development and Management
    1. §3.1 Introduction
    2. §3.2 Sponsors and Other Investors
    3. §3.3 Project Development
    4. §3.4 The Rôle of Advisors
    5. §3.5 Joint-Venture Issues
    6. §3.6 The Project Company
    7. §3.7 Public Procurement
  10. Chapter 4. The Project-Finance Markets
    1. §4.1 Introduction
    2. §4.2 Commercial Banks
    3. §4.3 Bonds
    4. §4.4 Other Non-Bank Lenders
    5. §4.5 Other Sources of Private-Sector Debt
  11. Chapter 5. Working with Lenders
    1. §5.1 Introduction
    2. §5.2 Commercial Banks
    3. §5.3 Bonds
    4. §5.4 Bank Loans Versus Bonds
    5. §5.5 Lenders’ Due-Diligence and External Advisors
    6. §5.6 Lenders and the Public-Procurement Process
  12. Chapter 6. Types of Project Agreement
    1. §6.1 Introduction
    2. §6.2 BOT, BTO et al.
    3. §6.3 Offtake Contract
    4. §6.4 Availability-based Contract
    5. §6.5 Concession Agreement
    6. §6.6 Other ‘PPP-like’ Contracts
  13. Chapter 7. Common Aspects of Project Agreements
    1. §7.1 Introduction
    2. §7.2 Term
    3. §7.3 Payment Mechanism
    4. §7.4 Contract Monitoring by the Offtaker/Contracting Authority
    5. §7.5 Performance Bonding and other Guarantees
    6. §7.6 Compensation Events
    7. §7.7 Excusing Causes
    8. §7.8 Relief Events
    9. §7.9 Step-in by the Offtaker/Contracting Authority
    10. §7.10 Termination of the Project Agreement
    11. §7.11 Change of Ownership
    12. §7.12 Dispute Resolution
  14. Chapter 8. Sub-Contracts and Other Related Agreements
    1. §8.1 Introduction
    2. §8.2 Construction Contract
    3. §8.3 O&M/Maintenance Contract(s)
    4. §8.4 Building-Services Contract
    5. §8.5 Fuel or Other Input-Supply Contract
    6. §8.6 Insurance
    7. §8.7 Site Lease and other Usage Rights
    8. §8.8 Permits and Other Rights
    9. §8.9 Amendments to and Replacement of Sub-Contracts
    10. §8.10 Parent-Company Guarantees
    11. §8.11 Direct Agreements
  15. Chapter 9. Commercial Risks
    1. §9.1 Introduction
    2. §9.2 Risk Evaluation and Allocation
    3. §9.3 Analysis of Commercial Risks
    4. §9.4 Commercial Viability
    5. §9.5 Construction Risks
    6. §9.6 Revenue Risks
    7. §9.7 Operating Risks
    8. §9.8 Input-Supply Risks
    9. §9.9 Uninsured Risks and Related issues
    10. §9.10 Environmental Risks
    11. §9.11 Residual-Value Risk
    12. §9.12 Contract Mismatch
    13. §9.13 Recourse to the Sponsors
    14. §9.14 Risks for an Offtaker/Contracting Authority
    15. §9.15 Why Do Projects Fail?
    16. §9.16 Loss on Default
  16. Chapter 10. Macro-Economic Risks
    1. §10.1 Introduction
    2. §10.2 The Time Value of Money
    3. §10.3 Interest-Rate Risks
    4. §10.4 Inflation
    5. §10.5 Foreign-Exchange Risks
    6. §10.6 Refinancing Risk
  17. Chapter 11. Regulatory and Political Risks
    1. §11.1 Introduction
    2. §11.2 Projects and Politics
    3. §11.3 Change in Law
    4. §11.4 Investment Risks
    5. §11.5 Wider Political Risks
    6. §11.6 ‘Sub-Sovereign’ Risk
    7. §11.7 Government Support Agreement
    8. §11.8 Political-Risk Insurance and Guarantees
  18. Chapter 12. Financial Structuring
    1. §12.1 Introduction
    2. §12.2 Investors’ Analysis and Equity Structure
    3. §12.3 Debt Cover Ratios
    4. §12.4 Debt:Equity Ratio
    5. §12.5 Debt Service Profile
    6. §12.6 Interest Rate and Fees
    7. §12.7 Additional Costs
    8. §12.8 Optimizing the Financial Structure
  19. Chapter 13. The Financial Model
    1. §13.1 Introduction
    2. §13.2 FUNCTIONS OF THE FINANCIAL MODEl
    3. §13.3 Model Inputs
    4. §13.4 Macro-Economic Assumptions
    5. §13.5 Project Costs and Financing
    6. §13.6 Operating Revenues and Costs
    7. §13.7 Accounting and Taxation Issues
    8. §13.8 Model Outputs
    9. §13.9 Sensitivity Analysis
    10. §13.10 The Banking Case, Base Case and Financial Close
    11. §13.11 Using the Model after Financial Close
  20. Chapter 14. Project-Finance Loan Documentation
    1. §14.1 Introduction
    2. §14.2 Lenders’ Term Sheet
    3. §14.3 Construction Phase—Drawdown of Debt
    4. §14.4 Operating Phase—Control of Cash Flow
    5. §14.5 Reporting Requirements
    6. §14.6 Debt Cancellation and Prepayment
    7. §14.7 Lenders’ Security
    8. §14.8 Conditions Precedent
    9. §14.9 Representations and Warranties
    10. §14.10 Covenants
    11. §14.11 Permissions, Waivers and Amendments
    12. §14.12 Events of Default
    13. §14.13 Lenders’ Decision-Making Process
    14. §14.14 Intercreditor Issues
    15. §14.15 Governing Law and Jurisdiction
    16. §14.16 Debt Refinancing
    17. §14.17 Secondary Equity Sale
  21. Chapter 15. Public-Sector Financial Support
    1. §15.1 Introduction
    2. §15.2 Indirect Public-Sector Financial Support
    3. §15.3 Direct Public-Sector Financial Support
    4. §15.4 Mezzanine Debt
    5. §15.5 Standby Financing
    6. §15.6 Refinancing after Project Completion
    7. §15.7 Gap Financing
    8. §15.8 Policy Banks
    9. §15.9 Credit Guarantee Finance
    10. §15.10 Capital Grant
    11. §15.11 Viability-Gap Funding
    12. §15.12 Part-Construction of the Project
    13. §15.13 Complementary Investment
    14. §15.14 Full Debt Guarantee
    15. §15.15 First-Loss Debt Guarantee
    16. §15.16 Pari-Passu Debt Guarantee
    17. §15.17 Debt Underpinning
    18. §15.18 Minimum Revenue Guarantee (‘MRG’)
    19. §15.19 Tariff Subsidy
    20. §15.20 Public-Sector Project Company
    21. §15.21 Guarantee Funds
  22. Chapter 16. Export-Credit Agencies and Development-Finance Institutions
    1. §16.1 Introduction
    2. §16.2 Export Credit Agencies
    3. §16.3 Political-Risk Insurance for Investors
    4. §16.4 ECAs and Bilateral DFIs
    5. §16.5 Multilateral Development-Finance Institutions
    6. Annex: U.S. Exim ‘Project Criteria and Application Information Requirements’
  23. Chapter 17. Recent Market Developments and Prospects for Project Finance
    1. §17.1 Introduction
    2. §17.2 The Effect of the 2008 Financial Crisis
    3. §17.3 The ‘Basel Process’
    4. §17.4 Non-Bank Lenders
    5. §17.5 Improving Project-Finance Credit Risk
    6. §17.6 New Models
    7. §17.7 The Future of Project Finance
  24. Glossary and Abbreviations
  25. Index