Best Practices in PPP Financing Latin America - e-Institute - World ...

Day 1 - FOURTH SESSION
Table Nº 5
Full Wrap vs Partial Credit Guarantees Comparison
Characteristic Full Wrap Guarantee Partial Credit Guarantee
Guarantee of
Principal and Interest
Yes.
Yes.
in a timely manner
Irrevocable Yes. Yes.
Unconditional
Yes.
Yes, subject to the maximum limit
amount of the guarantee.
Limit to the coverage
of the Guarantee
Credit Enhancement
Complexity
Versatility of
Application
Maximum Credit
Enhancement
Cost
Scope of Work of
the Rating Agencies
Guarantors
No limit. Covers 100% of every
coupon of principal and interest.
Increases the rating of the
guaranteed obligation to the
rating level of the guarantor.
Simple and standardized. Investors
need to understand the underlying
risk but derive comfort from the
100% guarantee.
Limited. Applicable only to projects
that can achieve an investment
grade underlying rating in the
global scale.
To the rating of the guarantor. If
the guarantor is rated “AAA”, and
the underlying rating is “BBB-”
(minimum investment grade), and
the credit enhancement achieved
is equivalent to 10 notches.
Normally less than 1%,applicable
to the full amount of the
guaranteed obligation.
Underlying rating (without
considering the guarantee)
and public rating (with the
guarantee). All work is done by
the Infrastructure / Project Finance
Group.
Monoline insurance companies
and banks in the form of
Stand By Letters of Credit.
Limit determined according to the number
of notches of credit enhancement required.
Increases the rating of the guaranteed
obligation to a specific number of notches
according to the size of the limit amount
of the guarantee.
More complex. Investors need to
understand the characteristics of each
PCG, the underlying risk, the credit
enhancement provided and its sufficiency.
Can be applicable to non-investment
grade projects.
Normally not more than 5 notches.
Normally above 2% applicable
to the guaranteed amount.
Underlying rating done by the
Infrastructure / Project Finance Group;
sizing of the PCG and public rating done
by the Structured Finance Group.
Multilateral agencies.
Source: Author, own Information.
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