Financing Essentials for Public-Private Partnerships Financing Essentials for Public-Private Partnerships United Nations SU/SSC Training Course United Nations SU/SSC Training Course

September 19, 2006September 19, 2006

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Financing of Private Public Projects

Role of Financial Counterparty

Funding Resource Professional ExpertiseProject Oversight and Monitoring

Objectives of the Financial Counterparty

Policy Goals and Objectives Proper Risk- Reward Relationship Market Rates of Return

Financial Social

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Financing of Private Public ProjectsUniverse of Financial Counterparties

Commercial BanksInvestment Banks Multilateral OrganizationsDevelopment Banks Non-Profit OrganizationsLocal, Provincial and National GovernmentsMultinational Development Companies Pension and Investment Funds Infrastructure Equity Funds

Sources of Funding DebtEquity Quasi - Equity

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Financing of Private Public ProjectsDebt

Bank Loans Bond Offerings Domestic or International Public Markets Local or Foreign Currency Denomination Senior/Mezzanine/Subordinated Debt

EquityInitial Funding Long Term Investment Change of Control Provisions/Replacement StandardsReturn Expectations Ongoing Financial Support

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Financing of Private Public Projects

Quasi-Equity Cash ContributionsGrants SubsidiesSupport AgreementsGuarantees Certain Forms of Debt

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Application of Funds

Direct Project CostsDevelopment Costs DesignSite Acquisition Construction Equipment/Rolling Stock

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Application of Funds

Finance Costs Capitalized Interest Reserve Funds

Debt Service ReserveMaintenance ReserveWorking Capital Reserve

Transaction Costs Structuring Fees Commitment Fees Legal Fees Credit Enhancement FeesFinancial Advisory Fees

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Project Risk AssessmentType of Project

Greenfield v. Brownfield SectorService AreaMature or Developing Market

Project Evaluation and Economics Project Need Sources and Uses of FundsMarket Analysis

Project Rationale Competition Pricing StructureMarket Competitiveness

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Project Risk Assessment

Project Financial Forecasts and Sensitivity AnalysesDevelopment of Key AssumptionsIdentification of Sensitivities Analysis of Sensitized Cashflows

Revenue ShortfallsConstruction CostsInterest RatesInflationCurrency Fluctuation

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Legal and Environmental Requirements

Legislation/Regulation/Tax PolicyContract Law Public Private PartnershipsEnvironmental Land Use Other

Project Documentation Concession Agreement Construction Contract Operations and Maintenance Contract Supply or Off-take Contracts

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Legal and Environmental Requirements

Concession Agreement Term of the Concession Revenue Tail Allocation of Risk Termination ProvisionsPayment Mechanism Deduction Regime Lenders’ RightsInsurance Provisions

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Legal and Environmental Requirements

Construction Contract Fixed Price/Date CertainTypes of Technology/Track RecordWarranties and Guarantees Construction Performance SupportLiability CapLiquidated Damages Lenders’ RightsRole of Technical Advisor/Scope of ServicesContingency Levels

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Legal and Environmental Requirements

Operations and Maintenance Contract Scope of Services/ComplexityDurationPrice/Payment Pass Through of DeductionsBenchmarking and Market Testing ProvisionsOperations Performance Support

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Legal and Environmental Requirements

Supply and Off-take Arrangements DurationTerms Price Price Adjustment Mechanisms

Financial Documentation Bond Indenture/Loan AgreementIntercreditor AgreementLenders’ Direct Agreements

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Evaluation of Main Project Parties

BorrowerShareholders Construction Contractor and SubcontractorsService Operator(s)Multilateral AgenciesLocal Authorities Other Public Sector Counterparties Suppliers Off-takers Co-LendersAdvisors

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Project Security

Forms of Security Revenue Pledges MortgagesLiens on or Assignment of Various Assets GuaranteesLetters of CreditImplicit/Explicit Public Sector Support

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Project Security

Reserve FundsTypes of Reserves

Maintenance ReserveOperating Reserves Dividend Reserves Others

Funding Requirements Amounts/Sizing TimingReplenishmentSource of Funding Release Tests/Dates

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Risk Evaluation

Design and Construction Risk

Operating Risk

Commercial Risk Sufficient Demand Pricing Levels AffordabilityCollection

Regulatory Risk

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Risk Evaluation

Macroeconomic and Sovereign Risk

Legal Risks

Financing RiskDebt StructureTermination/PrepaymentsForeign Exchange/Currency

Market Risks Interest Rate Inflation Sensitivities Currency Volatility

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The Decision

Evaluation of the Risks and Mitigants

Identification of the Strengths and Weaknesses of the Transaction

Risk v. Reward Analysis

Decision ProcessesGovernmental Investment Banks Commercial Banks Multinational OrganizationsEquity Investors

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Business Terms

Security Package Construction Support Package Operator Support Package

Gearing Requirements Drawdown ScheduleTerm of the FinancingFlow of FundsRepresentations and WarrantiesConditions Precedent

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Business Terms

Financial Covenants Interest Coverage RatiosDebt Service Coverage Ratios (historical and

projected) Loan Loss Coverage Ratio

Dividend Payout RestrictionsEvents of Default/RemediesCredit Ratings Derivative Products

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After Financial Close

Drawdown Process and Procedures Interest Rate Resets and RolloversRepayments and PrepaymentsPortfolio Review and Monitoring

Construction Monitor Monthly/Quarterly/Annual Financial Reporting Lifecycle CostsCovenant ComplianceInsurance Advisor

Waivers/Consents/Amendments