Course description
Fundamentals of Project Finance
Intermediate | 16 CPD | 2 Days
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
- Recognize 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
Suitability - Who should attend?
The Fundamentals of Project Finance course is aimed at those professionals working for investment or commercial banks, investment funds or fixed income investors, who are interested in the principles of analysing project finance risk and the main elements of structuring project finance debt. 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.
Outcome / Qualification etc.
By completing this two-day training course in Project Finance, delegates will be presented with a certificate of attendance.
Training 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
- 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
Expenses
The cost of this course includes a light breakfast, lunch and two additional refreshment breaks during each day of the course.
In-house training
Fitch Learning can also deliver this course as in-house training for your company, anywhere in the world. Tailored courses by Fitch Learning are designed to reflect your goals at both a corporate and a team level and help meet your specific training requirements.
About provider
Part of the Fitch Group, Fitch Learning partners with clients to enhance knowledge, skills and conduct. With centers in London, New York, Singapore, Dubai and Hong Kong, we are committed to questioning and understanding client needs across the globe and...
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