Professional Documents
Culture Documents
By
|
Managing Director, Project & Export
Finance
Lawyers Construction
contract
Operator/
Other
Insurer Design Builder Service
Consultants
Provider
Sub-contractors Sub-contractors
¢
ë
!
!
!
Ñ
å
#
¢%
% |
*&
(
Assess how industry outlook Scale and technology
might impact lender appetite Low cost and strategic producers
Markets for products
A% | ((
)(
$% &
Ñ
|
'
&
Match option with Sponsor
,-
,Ñ
Completion and EPC contract
objectives
*..*.)
+
/0-
Feedstock, offtake & other operating risks
Recommend approach to ensure
optimal solution is successfully
|+-/ Financial modelling & sensitivity analysis
completed DSCR vs. tenor and downsides
þ%
"
+ å% "
*(
Offshore vs. Onshore debt Optimal Debt: Equity ratio
Clean vs. ECA debt Quantum of Recourse
Capital Market Alternatives Contingent Support
Other liquidity sources Impact on financing costs
þ
+
1&
%
-2,*/3
+
-/*- ë-
/
+
-/*-
+.-|.
Time to Financial Close Recourse to Sponsors
Repayment mechanisms
Security
m
Ñ
Relationship dynamic:
Level of sponsor support may determine availability of financing, debt
capacity, tenor, pricing and/or other terms and conditions
Types of recourse to the sponsors include:
Completion guarantee
± Contingency equity commitment to cover cost overruns / construction
delay
± Falls away upon technical and financial completion tests
Cash deficiency support during operations
± Triggered by debt service coverage ratio tests
Sponsor guarantees during the operational phase of the project
6
"
Relationship dynamic:
All the arrangements for a functioning project has to be in place
Lenders must be comfortable with the economics and operating
environment of the project
Examples of conditions precedent (³CPs´)
Satisfactory fixed-price, turnkey EPC contract with appropriate liquidated
damages (³LDs´)
Satisfactory operations and maintenance (³O&M´) agreement
Satisfactory reports from independent technical advisors, market
consultants, legal counsel
Financing and security documents signed and in full force and effect
Satisfactory insurance arrangements
Satisfactory environmental impact assessment (³EIA´) or management
plan
Banks¶ approval of base case financial projections
Confirmation that no event of default has occurred or is continuing
Valid ^overnment licenses, consents and waivers
M
Relationship dynamic:
SPV typically must deposit revenues directly into lender-managed escrow
accounts, so that lenders can control distribution of cash flow according to
a strict ³cashflow waterfall´
Example of a cashflow waterfall
w Operating costs, maintenance capital expenditures taxes, statutory duties
and levies
wInterest payments
wPrincipal repayments
wTransfer to Debt Service Reserve Accounts (DSRA)
wDebt service for working capital facilities or other
permitted indebtedness
wDividend to shareholders (must satisfy financial
tests prior to distribution)
| &(
( (
Relationship dynamic:
Set aside excess cash flow for repayment purposes for a rainy day
Compensation received from third parties if things go wrong is
immediately applied to repayment of debt
Accelerate repayment when project does well so that lenders can recover
capital more quickly
Examples of repayment mechanisms
Debt Service Reserve Accounts (e.g., forward looking 6 months¶ debt
service)
Mandatory prepayment upon receipt of liquidated damages from
contractors, insurance proceeds, etc.
³Cash sweep mechanism´
(" (
Relationship dynamic:
Establish controls on the management of the SPV to ensure that lenders¶
interests are adequately protected
Undertakings will be structured to take into account administrative convenience
± covenants typically have thresholds attached
SPV can seek lenders¶ consent to waive restrictions on a case-by-case basis
Examples of control provisions
SPV to use the debt facilities solely for purposes stated in the facility
agreement
No change of shareholding / mergers
No additional indebtedness
No new investments or acquisitions (except permitted capital expenditures)
No sale or disposal of assets
No creation of liens on property or assets / assignment of incomes or rights to
third parties
No change to SPV constitutional documents
No material change to key contracts
Arms-length transactions with related parties
¢
"
(
Relationship dynamic:
Financiers must be kept up to date with the project¶s operational and
financial performance, so as to spot potential problems early on
SPV typically has to undertake to provide technical and financial
information to the lenders periodically
SPV must inform lenders of any material change in business conditions /
key contracts / legal disputes
Examples of ³informational covenants´
SPV¶s annual projections based on the financial model, compiled using
assumptions acceptable to lenders
SPV¶s unaudited quarterly financials and audited fiscal year-end financial
statements
SPV¶s corporate information (e.g., minutes of board meetings)
Updates to technical and market consultants¶ reports
Notice of proposed revisions to key contracts
Notice of adverse events (e.g., legal disputes, labor disputes, damage to
assets, event of default)
&
Relationship dynamic:
Financiers need to have all the rights, title and interests to the SPV¶s
assets
Typical example of security structure:
Rights to the SPV¶s rights to the project site
Rights to key project documents, including the Concession, the EPC
contract, product sales contracts, etc.
Pledge over the SPV¶s shares
Charge over SPV assets, property and fixtures, plant and equipment, etc.
Floating charge over current assets
Assignment of all insurance policies
Charge over all benefits accruing under hedging or risk management
contracts
å
(
Relationship dynamic:
Financiers will structure ways to accelerate repayment / exercise step-in-
rights / enforce security if things go wrong with either the project /
shareholders / key project parties
Most defaults scenarios include a ³cure period´
Waivers can be sought subject to agreement by lenders
Typical events of default include:
Non-payment of debt service
Misrepresentation
Illegality
³Cross-default´
Termination of core project documents
Revocation of licenses or permits
Insolvency events
Failure to maintain adequate debt service coverage levels
³Material adverse change´
Nationalization / ^overnment default on Concession ± financiers would
recognize this is extremely unlikely in the case of Hong Kong!
þ
Õ &
&
The earlier a financier gets involved the better
Advise on project and contract structures to ensure bankable financing
A
/
&
|
)
"
+
Managing Director Head of ^lobal Corporates & Public Sector
Head of Oil & ^as and Petrochemicals, Asia Client Relationships, Wholesale Banking
0"
Õ"
Ñ(
0"
Õ"
Ñ(
9th Floor Standard Chartered Bank Building 10th Floor Standard Chartered Bank Building
4-4A Des Voeux Road Central Tel (852) 2841 0357 4-4A Des Voeux Road Central Tel (852) 2821 1513
Hong Kong Fax (852) 2523 4273 Hong Kong Fax (852) 2523 5854
Robert.Johnson@hk.standardchartered.com HP (852) 9880 7294 ^race.Fung@hk.standardchartered.com HP (852) 6336 3328
m