gs pipeline project finance

8/9/2019 GS Pipeline Project Finance

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Pipeline Project FinancePipeline Project Finance

Breakout Session #1 and #2Breakout Session #1 and #2

May 28, 2008


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Project Financings are Common in the EnergyProject Financings are Common in the Energyand Oil & Gas Sectorsand Oil & Gas Sectors

14-May-2007PowerSaudi Arabia3,500Marafiq IWPPJubail Power &Water Co

21-Feb-2007Oil Refinery/ LNG and LPG

Plants

Venezuela3,500Western Energy Developmentand Anaco Project - PDVSA

Yucpa Finance BV

25-Jan-2007Rail-InfrastructureSouth Africa3,630Gautrain Rapid Rail LinkBombela Concession Co PtyLtd

7-Jun-2007PowerPhilippines3,678Mirant AcquisitionTokyo Crimson EnergyHoldings Corp (Mirant)

22-Aug-2007MiningMadagascar3,700Ambatovy Nickel ProjectAmbatovy Minerals SA

27-Sep-2007RoadMexico4,280FARAC Toll Road PPPRed de Carreteras deOccidente

23-Aug-2007Processing PlantQatar4,739Qatar Aluminum PlantQatalum

6-Sep-2007Petrochem/ Chemical Plant

China5,600Fujian Refining and EthyleneJoint Venture Project

Fujian Refining &Petrochemical Co Ltd - FREP

30-Jul-2007Oil Refinery

/LNG and LPGPlants

Qatar5,714Qatargas 4Qatar Liquefied Gas Co Ltd(Qatargas) IV

12-Dec-2007Processing PlantUnited ArabEmirates

$7,050Abu Dhabi Aluminum SmelterEmirates Aluminum - EMAL

Financial CloseSectorCountryAmount($Mm)Project NameBorrower Name

14-May-2007PowerSaudi Arabia3,500Marafiq IWPPJubail Power &Water Co

21-Feb-2007Oil Refinery/ LNG and LPG

Plants

Venezuela3,500Western Energy Developmentand Anaco Project - PDVSA

Yucpa Finance BV

25-Jan-2007Rail-InfrastructureSouth Africa3,630Gautrain Rapid Rail LinkBombela Concession Co PtyLtd

7-Jun-2007PowerPhilippines3,678Mirant AcquisitionTokyo Crimson EnergyHoldings Corp (Mirant)

22-Aug-2007MiningMadagascar3,700Ambatovy Nickel ProjectAmbatovy Minerals SA

27-Sep-2007RoadMexico4,280FARAC Toll Road PPPRed de Carreteras deOccidente

23-Aug-2007Processing PlantQatar4,739Qatar Aluminum PlantQatalum

6-Sep-2007Petrochem/ Chemical Plant

China5,600Fujian Refining and EthyleneJoint Venture Project

Fujian Refining &Petrochemical Co Ltd - FREP

30-Jul-2007Oil Refinery

/LNG and LPGPlants

Qatar5,714Qatargas 4Qatar Liquefied Gas Co Ltd(Qatargas) IV

12-Dec-2007Processing PlantUnited ArabEmirates

$7,050Abu Dhabi Aluminum SmelterEmirates Aluminum - EMAL

Financial CloseSectorCountryAmount($Mm)Project NameBorrower Name

Source: Project Finance Magazine March 2008


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Project Finance Loans are Based on a Complex Set ofProject Finance Loans are Based on a Complex Set ofContractual ArrangementsContractual Arrangements

Design &ConstructionConsortium

Shippers

Lenders

EquitySponsors Project

DebtService

Up Front

$

C o n t r a c t R e v e n u e s

Dividend

$

C a p a c i t y

F i n i s h e d

F a c i l i t y

$ P r o g r e s s P a

y m e n t s

Operator

$Ongoing

Operations

In a project financing, the lenders source of repayment is limited to project revenuesand assets


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Generally Lenders will take limited completion risk construction risk typically mitigated through combination of Strong EPC contracts (fixed price, date certain, turn key contract) that includes liquidated damages with creditworthy contractor Substantial project contingencies included in contract price Owner / sponsor pre-completion guarantees will repay debt if project not completed

Independent engineers strong involvement to insure that project is built on budget and on time Report demonstrates viability of project budget, schedule, technology and cost Has oversight / limited approval role during construction

Lenders will want to insure that all funding needs are provided for Project funding is fully secured via equity commitments, project debt funded and / or bank commitments Off-take or capacity contracts in place with limited outs in order to obtain financing Independent feasibility study demonstrates viable relationship between project revenues arising from contracts and the costs of the fully

funded / committed capital structure

Lenders will assess operating risk as part of the overall project seek protections from revenue interruption Strong, creditworthy operator with direct experience

Ability to replace operator with a qualified operator Limited force majeure Insure everything commercially insurable casualty, earthquake, terrorism, business interruption

Limited planned outages Project operating and debt reserves

The project credit will be based heavily on contracted cash flows Strong, contracts with creditworthy offtaker Price and volume contracted Lenders will give limited credit to uncontracted cash flows unless there is strong market demand Ability for market to absorb supply (market consultant study)

Project investors look at strength of sponsor, project economics, and a downside risk

analysis

Project Finance Investors a Limited Appetite forProject Finance Investors a Limited Appetite forCertain RisksCertain Risks


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MoodyMoody s and S&P Ratings Scaless and S&P Ratings Scales

Investment Investment Grade Grade

AAA

AA+AAAA-

Aaa

Aa1Aa2Aa3

A1A2A3

Baa1Baa2Baa3

LongLong --TermTerm ShortShort --TermTerm LongLong --TermTerm Short Short --Term Term

S&PS&P MoodysMoodys

A-1+

A-1

A-2

A-3

Prime - 1

Prime - 2

Prime - 3

Speculative Grade

BNot

Prime

C

Ba1Ba2Ba3

B1B2B3Caa1CaC

D for DefaultD for Default

BBB-BBBBBB+

B+BB-

CCC+

CCC-CCC

A+AA-

BB+BBBB-

Ratings are aRatings are arelativerelative

ranking ofranking ofability andability and

willingness towillingness torepayrepay

obligationsobligations


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Cases Under ConsiderationCases Under Consideration


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Key Proposal Assumptions that Impact the FinancingKey Proposal Assumptions that Impact the FinancingStructureStructure

The Project is a 4.5 bcf/day system to transport natural gas from Prudhoe Bay to theAlberta market hub;

25-year ship-or-pay contracts with market standard shipper credit requirements;

Debt is non-recourse to TransCanada (i.e., the debt is project debt);

Capitalization of 70% debt and 30% equity during construction;

Capital cost overruns to be financed through federally guaranteed cost overrun loans;

Federally guaranteed capital cost overrun loans to be repaid through shipper surcharge;and

No project completion guarantee or pre-completion debt guarantee from equity sponsors isassumed.

It is important to note that these assumptions underlie all of our conclusions with regards to the Proposal, and unless otherwise noted, any cases based on the

Proposal.


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Developing the Proposal Base Case Capital StructureDeveloping the Proposal Base Case Capital Structure

Key Drivers Funding Considerations

Timing of Equity vs. Debt

Debt: Bank Loans vs. Bonds

Allocation of Federal Loan Guarantee

Annual Funding Requirements

Mix of Funding Sources

Use of the Federal Loan Guarantee

Interest Rate Assumptions

Allocation of Funding Sources

Equity requirement issignificant and frontloaded to attractlenders and to ensureinvestment grade

ratingsOptimize impact ofFederal LoanGuarantee

Minimize overallinterest costs


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Is the Proposal Base Case viable from a financing standpoint?

Goldman Sachs believes that the Proposal Base Case is financeable based on the following:

Strength of project sponsor

Strength of prospective shippers

Proposal assumptions regarding contracts and cost over-run surcharge

Federal loan guarantee and cost over-run facility

Financial

Strong debt service coverage

Attractive equity returns

Favorable relationship between gas price forecasts and tariff

Ongoing considerations Obtaining shipper commitments

Obtaining federal loan guarantee commitments

Develop strong overall credit package

Strong project finance market

Summary of FindingsSummary of FindingsProposal Base CaseProposal Base Case


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DisclaimersDisclaimers

The analysis and conclusions set forth herein are based on economic, financial, political, market and otherconditions as they exist and can be evaluated on the date hereof, and we have not undertaken to reaffirm orrevise our findings or otherwise comment upon any conditions or events occurring after the date hereof. Ouranalysis and conclusions also involve numerous assumptions and uncertainties, many of which cannot beverified or ascertained presently. Goldman Sachs does not provide accounting, tax or legal advice, and wemake no representation as to the appropriateness or adequacy of the information contained herein or ourprocedures for, and express no view as to, the tax, accounting or legal treatment of any matter.

Goldman Sachs and its affiliates, officers, directors, and employees, including persons involved in thepreparation or issuance of this material, may from time to time have "long" or "short" positions in, and buy orsell, the securities, derivatives (including options) or other financial products thereof, of entities mentioned

herein. In addition, Goldman Sachs and/or its affiliates may have served as an advisor, manager or co-manager of a public offering of securities by any such entity and/or for any other securities- or asset-relatedtransaction. Further information regarding this material may be obtained upon request.

This material provided by Goldman Sachs is exclusively for the information of the Commissioners of theState of Alaska Departments of Natural Resources and Revenue and senior management of the State. Inaddition, unless indicated otherwise, further use by the State of information and data contained herein

sourced to third parties would require approval from such third parties given directly to the State.

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