PUBLIC PRIVATE PARTNERSHIPS AND PROJECT FINANCE
Information
Aim
In addressing the primary aim, the training programme is intended to provide participants with an enhanced understanding of:
• the use of Project Finance as a tool to finance the procurement of public sector services under PPP, and the key associated cost and financial structuring implications;
• the commercial objectives of the parties involved in a PPP and how it influences the structuring of contracts for the procurement of public services;
• how the risk and return requirements of private sector financiers and equity sponsors impact the suitability of Project Finance for PPP projects relative to other financing alternatives;
• some of the key issues that might influence providers of services under long term PPP contracts to use Project Finance, rather the other financing alternatives;
• the key financial sensitivities in a Project Finance and how changes in operating and financial assumptions will influence the cost of services under PPP contracts;
• the main sources of Project Finance , both debt and equity, the principal risk and return criteria of financiers, factors determining the use of the various financial instruments and potential implications for users of services under PPP contracts;
• some critical aspects of Project Finance documentation in support of the financing of the procurement of services under long term PPP projects
Methodology
The initial sessions on Day One concentrate on the evolution of some of the approaches adopted by government in the financing of public sector enterprises and projects.
Subsequent sessions concentrate on the use of Project Finance in support of long term PPP contracts.
There will be a heavy emphasis on review of completed case studies as a method of learning, combined with formal presentations to cover the core principles of the topics addressed during the Workshop.
To increase the effectiveness of training, use of computers for review of financial models will be required
Some pre - course preparation will be required
Objectives
Participant profile
To obtain maximum benefit from this training participants should already be familiar with the core aspects of:-
• Corporate financial analysis techniques
• The main functions in Excel
• The principal banking and Capital Markets debt products
• Investment appraisal techniques ( e.g. IRR, NPV) and the fundamental principles of company valuation
• Banking documentation
It will be assumed that participants have limited practical knowledge of Project Finance
Case studies
There will be a core case study used throughout the training. This will be supplemented by the use of other examples involving PPP in sectors that are relevant to the participants.
Schedule
Day One
Session 1
Issues for Government
An introductory session addressing some of the factors that will influence government in the approach to the financing of public sector enterprises and projects, including
• Budgetary issues and Sovereign risk ratings
• Options for the financing of public sector infrastructure assets – from operating contracts to BOOT and privatization
• Value for Money in the procurement of public sector services vs political and social issues
• Ownership vs use of Public Sector assets
• Legal and regulatory environment to support PPP financings
Exercise: to discuss the options for the financing of public sector projects in selected sectors and factors influencing the choice of financing
Session 2
The UK Private Finance Initiative
• What is it and motivations
• The typical PFI process, from business case preparation to financial close
• Separating the ownership of assets from the right to use services
• Value for Money considerations in the procurement of public sector services
• Risk allocation issues
• Further developments of the UK PFI concept – the LIFT programme; partnerships between public and private sector Entities; PF1 2 ….lessons learned from PFI projects that have been financed by the private sector
Case study: review of a Project Finance in support of a PPP transaction to illustrate the role of the various parties and the structure of the Project Finance
Session 3
Risks in the financing of long term PPP projects and risk allocation
• Pre – completion risks
• Operating risks
• Financial risks
Risk allocation in PPP projects
Exercise: participants identify the key risks and potential mitigants in a PPP project and prepare a project rating in support of a Project Finance transaction
Day Two
Session 1
Reviewing the project financial model
• Structure of a Project Finance model
• Typical factors influencing the viability of Infrastructure projects
• Evaluating the viability of the underlying assumptions
• Use of sensitivities vs simulations
• Useful Excel features
Exercise: participants review and sensitise the financial model for an assigned case study project with a view to establishing the potential viability of the project and key influences on the project
Session 2
Debt financing issues
• Corporate Finance vs Project Finance issues
• Debt vs Equity
• Loans vs bonds
• Potential use of credit enhancement
• Approach to re – financing and impact of re – financing gains
• Interest and currency exposure risks and risk management
Session 3
Case study: Capital structuring for a Project Finance in support of a PPP project
• Review of the capital structuring for the case study project to understand how changes in the capital structure, as well as interest rate exposure, affect the financial viability of the case study project and potential implications for the structuring of the PPP contract
Day Three
Session 1
Risk and Return in PPP projects – equity perspective
• An overview of the main project investment appraisal techniques and discussion on their uses and limitations
• A brief review of the principles for calculating corporate cost of capital and use as a basis for evaluating project returns
• Understanding the equity investor’s approach to achieving returns from the project
company, including operating relationships with the project company, and cash
extraction through re – financing
• The role of Infrastructure Funds
Exercise: comparison of projected returns from selected projects
Session 2
Some key aspects of Project Finance documentation
• Key financial covenants
• Typical Events of Defaults under a Project Finance
• structuring of termination provisions in a PPP contract and how this impacts on risks faced by debt financiers
• Enforcement rights of lenders following default in a debt finance
• Importance of step in rights for lenders in the event of a default
Session 3
Why projects face difficulty
• Typical reasons for failure
• Lessons which can be learnt from past project difficulties
• Potential options for dealing with problem projects
Case Study: Review of a problem project to discuss the reasons for the project's difficulties, how they might have been avoided and potential solutions
Register interest
As every course we run is tailored to meet the specific needs of each client, we can only provide an estimate after fully understanding your specific requirements. Please complete the form below of call +44 (0) 208 894 4977 to discuss how Taylor Associates can help you.