Structuring & Documentation Issues in Project Finance

Course Content:

Bankability – overview of the main

• What makes a project Bankable?
• Market risk
• Completion risk – 3 main aspects
• Operating risks
• Supply risk
• Forex / Currency risk
• Financing risk – interest rate risk & availability (syndication) risk
• Political risk
• Force majeure risks – 4 kinds
• Legal risk
• Environmental risk

Key Structuring Principles & Issues

• Creating a Non-recourse structure
• Tax issues
  • Group tax relief & Consortium* relief
  • Thin Cap rules
  • Transfer pricing issues
  • Withholding taxes
• Subordination & what it is and why it matters
  • Contractual vs. Structural

Choosing the Ownership & Project structures

• The rationale for using an SPV
• SPV vehicle types – pros, cons and risks
  • Company
  • Partnerships
  • General
  • Limited
  • Unincorporated Joint Ventures
• Review of the Contractual/ Project Framework
• Review of various types of Project Delivery methods
  • DBFM, BOOT, BOT, BOO, BLT
  • Leasing structures: Leveraged, Captive etc

Generic Issues in Documentation

• Governing Law “clause” for the main contracts – Finance, Construction, Operation
  • Rationale for inclusion
  • The Rome Convention
• Jurisdiction “clause”
  • Rationale and importance
• Liquidated Damages
  • General issues
  • Rules against Penalties – (q.v. M&J Polymers -v- Imerys Minerals)
  • Recent developments (q.v. Azimut-Benetti v Healey 2010)
• Force Majeure
  • Key risks in Drafting
  • Poor/no definition – no recognised meaning in English law
• Dispute Resolution Generally
  • Arbitration
  • Using Experts

The Project Agreement: key issues

• 2 main types – Off-take Agreement or Concession Agreement
• Off-take Agreements
  • Take-or-Pay vs. Take-and-Pay
  • Take-or-Pay penalty risk (q.v. M&J Polymers -v- Imerys Minerals)
  • Other types: Long-term sales agreements, Spot sales
• Concession Agreements
  • Typical sectors and examples
  • Structure
  • Key risks
  • Risky sectors – “Real” Toll Roads, Waste Plants

Senior Facilities Agreement (SFA) & Term sheet

• Debt Service
  • Margin and margin ratchets
• Specific issues for Revolving Credit Facilities (“RCFs”) & Working Capital
  • Aspects relating to RCFs – clean-downs
  • Problems with Headroom
• Key financial covenants – application, pros & cons
  • ADSCR
  • Loan / Bond Life
  • Project Life
  • Difficult issues (historic vs forward looking, treatment of cash & cash reserves)
• MAC clauses
  • When they might matter
  • Borrower’s vs lender’s approach

Collateral/Security & Guarantees & Credit support

• Collateral
  • Typical assets subject to Security
  • Defensive security and the benefit of the Negative Pledge
  • Offensive Security
• Guarantees vs Guarantees Indemnities
  • Why they matter
  • Key issues – enforceability
• Letters of Credit
  • Distinguished from Bonds and Guarantees
• Typical problem areas (formalities)
• Bonds generally
  • Tender / bid bond
  • Advance payment bond
  • Performance bond
  • Retention and maintenance retention bonds

Hot issues for Sponsors (Techniques for boosting IRR & limiting exposure)

• The Sponsor’s main aim – Improving the Flow to Equity
  • Timing of Equity Injection
  • Using equity bridges
• Optimizing the “Equity” structure
  • Subordination
• Distributions to the Sponsor – Distribution lockouts
• Cash and Cash sweeps – impact on Leverage/ covenants
• Issues re the various Control/Reserve / Escrow Accounts – Debt Service, Maintenance
• Techniques for getting flexibility in the Loan Agreement
  • Cure rights
  • The Security Principles

Joint Venture / Shareholders issues

• Main approaches to protection of minority interests
  • Shareholder Agreements vs Articles of Association – pros & cons
• Board issues
• Pre-emption issues & why they matter
• Information rights
• Exit, Termination & Deadlock
  • Drag & Tag rights
  • Deadlock- Russian Roulette etc
  • Valuation on Exit – problems with “Fair Value”

Construction contracts

• Key risk in Construction phase
• Risk Allocating through the contract type
  • Fixed-price vs Cost-plus
  • EPC-Turnkey (fixed price)
  • P&C only
• Risk mitigation techniques
  • Liquidated damages
  • Performance Bonds
  • Warranties
  • Contingency reserves (split between debt & equity?)
  • Insurance
  • Step-in rights – collateral warranties or schedule of third party rights
• Issues with sub-contractors
• Application of The Construction 1996 and LDEDC Act 2009

Operating & maintenance

• Key risks
  • Operating efficiency
  • O&M increase – routine & major O&M
  • Market demand / Pricing
  • Input availability
  • Force majeure
• Risk mitigation techniques
  • Take-or-pay agreement
  • Put-or-Pay agreements
  • Pass-through / Tolling agreements
  • Debt Service Reserves
  • Cash traps
  • Insurance