Recently, there has been a rise in the number of infrastructure bonds issued, largely as a result of the low interest rate environment, the lack of suitable (institutional) investment opportunities, lack of banking licenses of some market participants and regulatory challenges of certain banks. The below tables, on a high level, present a general overview […]
An Accordion feature is an agreed possibility included at the outset of a financing process allowing the borrower to increase the principal amount under the main facility agreement (e.g. a capex facility) as long as certain market standard provisions are met. It is worth noting that an Accordion feature is not a committed facility by […]
The cash flow from infrastructure investments often exceeds the accounting profit of the company. This is principally because infrastructure assets typically have high depreciation charges (due to high upfront capital expenditure requirements) but relatively low ongoing capital expenditure requirements. Since dividends on ordinary shares can only be paid out of retained profits, this creates a […]
The relevant cost of debt should be the current implied interest rate of a company’s debt, based on current market values for the debt or for companies of comparable risk and maturity. However, lack of current market values for many classes of debt might make it hard to obtain and will have to be determined […]
Subordinated debt allows project financings and corporate transactions to gear up more than they would be able otherwise. Typical Project / Infrastructure subordinated (mezzanine) debt characteristics include: Long term, secured debt Often no enforcement rights until senior debt is repaid Generally amortizes fully over term (although is typically interest only whilst senior debt is outstanding) […]
A term sheet will usually include the following commercial items, which are the key subject matter in a debt raising process:
The key exercise in any investment decision is to properly assess a project’s risks (and returns). In project finance, usually key risks that are being looked include: Market Risk Will the power station sell enough electricity at a price sufficient to meet expected returns? Will enough cars use the toll road at the right times […]
Typically, for infrastructure projects, the return requirement of investors reduces over time as the risks involved in the project reduces. For example, for a greenfield toll road the risk premium will depend on the stage of the road development. A higher risk premium is required during the early years, recognizing construction and traffic uncertainties. As […]
In project finance, the cash flow cascade regularly is the key basis and determinant for making business decisions. Whilst split in a similar fashion as in typical corporate financial reporting, a much stronger emphasis is put on the financing aspects. The cash flow waterfall usually contains many sub-totals, each of which steering different claims on […]
In corporate financial reporting, the cash flow statement is usually derived from the Profit and Loss and Balance Sheet (through adaptions) and typically split into Cash flow from operations (CFO), Cash flow from investing (CFI) and Cash flow from financing (CFF) as generically presented below. Cash Flow Statement
Project finance does stand in contrast to typical corporate or balance sheet and asset financings. In corporate or balance sheet financings, a financing decision is usually based on the entire corporate balance sheet of a company rather than on the cash flow generating capacity of a dedicated special purpose vehicle (SPV). In asset finance, the […]