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Project Finance in Theory and Practice, 2nd Edition

Book Description

This book presents comprehensive coverage of project finance in Europe and North America.  The Second Edition features two new case studies, all new pedagogical supplements including end-of-chapter questions and answers, and insights into the recent market downturn.  The author provides a complete description of the ways a project finance deal can be organized—from industrial, legal, and financial standpoints—and the alternatives available for funding it.  After reviewing recent advances in project finance theory, he provides illustrations and case studies. At key points Gatti brings in other project finance experts who share their specialized knowledge on the legal issues and the role of advisors in project finance deals.

*Forword by William Megginson, Professor and Rainbolt Chair in Finance, Price College of Business, The University of Oklahoma

*Comprehensive coverage of theory and practice of project finance as it is practiced today in Europe and North America

*Website contains interactive spreadsheets so that readers can input data and run and compare various scenarios, including up to the minute treatment of the cutting-edge areas of PPPs and the new problems raised by Basel II related to credit risk measurement

Table of Contents

  1. Cover image
  2. Title page
  3. Table of Contents
  4. Copyright
  5. Preface to the Second Edition
  6. Preface to the First Edition
  7. Scannapiecos Foreword
  8. Foreword
  9. About the Author and the Contributors
  10. Chapter 1. Introduction to the Theory and Practice of Project Finance
    1. Introduction
    2. 1.1 What is Project Finance?
    3. 1.2 Why Do Sponsors Use Project Finance?
    4. 1.3 Who Are the Sponsors of a Project Finance Deal?
    5. 1.4 Overview of the Features of Project Finance
    6. 1.5 The Theory of Project Finance
  11. Chapter 2. The Market for Project Finance: Applications and Sectors
    1. Introduction
    2. 2.1 Historical Evolution of Project Finance and Market Segments
    3. 2.2 The Global Project Finance Market
    4. 2.3 The Evolution of the PPP Market
  12. Chapter 3. Project Characteristics, Risk Analysis, and Risk Management
    1. Introduction
    2. 3.1 Identifying Project Risks
    3. 3.2 Risk Allocation with Contracts Stipulated by the SPV
    4. 3.3 Summary of the Risk Management Process
  13. Chapter 4. The Role of Advisors in a Project Finance Deal
    1. Introduction
    2. 4.1 The Role of Legal Advisors in Project Finance Deals
    3. 4.2 The Role of the Independent Engineer in Project Finance Deals
    4. 4.3 The Role of Insurance Advisors and Insurance Companies in Project Finance Deals
  14. Chapter 5. Valuing the Project and Project Cash Flow Analysis
    1. Introduction
    2. 5.1 Analysis of Operating Cash Flows and Their Behavior in Different Project Life Cycle Phases
    3. 5.2 Defining the Optimal Capital Structure for the Deal
    4. 5.3 Cover Ratios
    5. 5.4 Sensitivity Analysis and Scenario Analysis
  15. Chapter 6. Financing the Deal
    1. Introduction
    2. 6.1 Advisory and Arranging Activities for Project Finance Funding
    3. 6.2 Other Roles in Syndicated Loans
    4. 6.3 Fee Structure
    5. 6.4 International Financial Institutions and Multilateral Banks
    6. 6.5 Bilateral Agencies: Developmental Agencies and Export Credit Agencies (ECAs)
    7. 6.6 Other Financial Intermediaries Involved in Project Finance
    8. 6.7 Funding Options: Equity
    9. 6.8 Funding Options: Mezzanine Financing and Subordinated Debt
    10. 6.9 Funding Options: Senior Debt
    11. 6.10 Project Leasing
    12. 6.11 Project Bonds
  16. Chapter 7. Legal Aspects of Project Finance
    1. Introduction
    2. 7.1 The Project Company
    3. 7.2 The Contract Structure
    4. 7.3 Refinancing Project Finance Deals
  17. Chapter 8. Credit Risk in Project Finance Transactions
    1. Introduction
    2. 8.1 The Basel Committee’s Position on Structured Finance Transactions (Specialized Lending)
    3. 8.2 Rating Criteria for Specialized Lending and Their Application to Project Finance
    4. 8.3 Rating Grade Slotting Criteria of the Basel Committee and Rating Agency Practices
    5. 8.4 The Basel Accord and the Treatment of Credit Risk for Project Finance Loans: Is Project Finance More Risky Than Corporate Loans?
    6. 8.5 Empirical Studies on Project Finance Defaults and Recovery Rates
    7. 8.6 Introduction to the Concepts of Expected Loss, Unexpected Loss, and Value at Risk
    8. 8.7 Defining Default for Project Finance Deals
    9. 8.8 Modeling the Project Cash Flows
    10. 8.9 Estimating Value at Risk through Simulations
    11. 8.10 Defining Project Value in the Event of Default
  18. CASE STUDY 1: Cogeneration 1
  19. CASE STUDY 2: Italy Water System
  20. CASE STUDY 3: Quezon Power Ltd. Co.
  21. CASE STUDY 4: Milan Metro Line 5
  22. APPENDIX: The Structure and Functioning of the Simulation Model
    1. Introduction
    2. A1 Breakdown of the Financial Model
  23. Glossary and Abbreviations
  24. References
  25. Index