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Fitch Learning

Fundamentals of Project Finance

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Next dates

May 16—17
2 days
Singapore, Singapore
USD 2395
USD 1197 per day
Jun 13—14
2 days
London, United Kingdom
GBP 1595 ≈USD 2072
GBP 797 per day
Jun 20—21
2 days
Washington, DC
USD 2395
USD 1197 per day
+2 more options

Description

The goal of this course is to equip participants with an overview of Project Finance by taking them through all stages of a Project Finance transaction, so that they can apply the techniques of Project Finance.

Key Learning Outcomes:

  • Apply a structured and systematic approach to assessing project finance transactions
  • Recognise the key characteristics of a robust project and identify the weakest links in the transaction
  • Use qualitative and quantitative tools and measures to distinguish the key risks
  • Interpret each of the risks to determine their severity and potential impact on the transaction structure
  • Appreciate how the mechanisms in the transaction documents operate to protect the creditors and evaluate the protection provided
  • Build a credit rationale in order to make and substantiate investment decisions.

Content

Introduction

  • Key characteristics of Project Finance and factors influencing the choice of Project Finance vs other debt financing options
  • Intensive overview of a transaction to illustrate key aspects of a Project Finance

Ownership and Sponsors

  • Characteristics of strong sponsors
  • Ownership structure and relationship with key parties to the transaction
  • Operational and financial resources; strategic importance.
  • Segregating cash flows and de-linking from related parties

Project Investment Criteria

  • Measures used by Investors; Payback period, NPV, IRR
  • Measures used by Lenders: Leverage, Debt service, Loan Life, Project or Reserve Life Cover Ratios and economic rationale
  • Cost to the user: Value for Money and Affordability

Jurisdiction, Legal and Expert Reports

  • Issues to consider: legal framework, licences, regulation, legislation etc
  • Project contracts
  • External technical reports: Clarity, transparency and timeliness
  • Illustration case study: Appraisal of project structure for a case study project

Assessing the Risks

The aim of this section is to identify and evaluate the main project risks.

  • Discussion of risks in selected transactions in different business sectors to illustrate some lessons of experience

Macro risks

  • Country and political risks: role of governments and related sovereign risk
  • Macro economic risks and understanding their impact on project risks
  • Industry Risks
  • Social-environmental exposures
  • Ilustration case study: Evaluation of key macro risks for a case study project

COURSE CONTENT

Day One

Introduction

  • Key characteristics of Project Finance and factors influencing the choice of Project Finance vs other debt financing options
  • Intensive overview of a transaction to illustrate key aspects of a Project Finance

Ownership and Sponsors

  • Characteristics of strong sponsors
  • Ownership structure and relationship with key parties to the transaction
  • Operational and financial resources; strategic importance
  • Segregating cash flows and de-linking from related parties

Project Investment Criteria

  • Measures used by Investors: Payback period, Net Present Value (NPV), Internal Rate of Return (IRR)
  • Measures used by Lenders: Leverage, Debt service, Loan Life, Project Life Cover Ratios and economic rationale
  • Cost to the user: Value for Money and Affordability

Jurisdiction, Legal and Expert Reports

  • Issues to consider: legal framework, licences, regulation, legislation etc
  • Project contracts
  • External technical reports: Clarity, transparency and timeliness
  • Illustration case study: Appraisal of project structure for a case study project

Assessing the Risks

The aim of this section is to identify and evaluate the main project risks.

  • Discussion of risks in selected transactions in different business sectors to illustrate some lessons of experience

Macro risks

  • Country and political risks: role of governments and related sovereign risk
  • Macro economic risks and understanding their impact on project risks
  • Industry Risks
  • Social-environmental exposures
  • Ilustration case study: Evaluation of key macro risks for a case study project

Completion risk

  • Contractors: attributes of strong contractors
  • Cost structure: contracts, budgets and allocation of costs
  • Delay risk and contract terms: capacity to accommodate delays and transferring risk
  • Technology risk: factors which increase technological risk

Operational risk

  • Operator: uncovering risk related to the operator including performance, reputation, and financial position
  • Supply risk: quality and price of resources and products required for operation
  • Technology risk: Obsolescence/Economic Life/Remediation
  • Costs: make-up, timing and potential volatility of operating costs
  • Revenue risk /Off-take: demand risk arising from multiple payers
  • Tail risk: potential impact on cash available for timely debt service
  • Early termination risk: events which may lead to termination pre-maturity and lenders' step-in rights.
  • Counterparty risks: risks relating to key parties to a project Case study: Evaluation of operational risks for a case study project

Day Two

Debt Service, Capital Structure and Counterparty Risk

  • Evaluating the underlying operational and financing assumptions
  • Assessing the capital structure of the project entity and interest and currency exposures
  • Funding providers and types of funding and potential impact on credit risk
  • Debt profile: Amount, term, amortization schedule, currency and interest rate mechanisms
  • Determining the project’s capacity to generate stable cash flow to service the debt levels - Base case and appropriate stressed sensitivities
  • Assessing the project debt service capability using DSCR (Debt Service Cover Ratio), LLCR (Loan Life Cover Ratio), PLCR (Project Life Cover Ratio)
  • Counterparty risks: Creditworthiness and structural features to mitigate risk
  • Illustration case study: Debt service capability using cash flow forecasts and assessment of counterparty risks

Debt Structure - Documentation

Assess the appropriateness of the capital structure and features of the debt structure.

  • Security and credit rights
  • Payment waterfall
  • Collateral and assignment of contract rights
  • Rights of the controlling classes, inter-creditor issues
  • Structural features
  • Debt service covenants
  • Reserve accounts, cash sweeps, profit distribution controls
  • Refinancing risk
  • Case study: Suggested debt structure and term sheet for a case study project

Final Group Case Study and Presentation

Application of all the aspects of Project Finance assessment as addressed during the workshop to a separate case study. The work will be prepared individually as homework the previous day, and presentations will be prepared in small groups. The analysis should cover the following areas:

  • Project structure and parties
  • Project risks
  • Proposed debt structure and term sheet
  • Project debt service capability using cash flow forecasts
  • Counterparty risks
  • Conclusion

Who should attend

It has been assumed that participants will have limited practical knowledge of Project Finance but participants should already have a sound knowledge of financial analysis, the key features of banking products and commercial aspects of banking documentation. It will also be assumed that participants are familiar with investment appraisal techniques such as IRR and NPV. An understanding of the basic principles of company valuation will be helpful.

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