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THE ST<strong>AG</strong>ES OF PROJECT FINANCE TRANSACTIONS Project finance transactions usually consist of the following four steps Financial close Planning Construction Commissioning Operation Project team Feasibility study Financing package, Financing model Offer, negotiations Authorisations (authorities) Formation of special purpose company Completion Financing Completion Supply Construction Tests Handover Acceptance Commissioning Operation Maintenance PLANNING Step 1 The planning phase is very complex due to the parallel nature of the individual tasks. The result of this phase is a business plan; its implementation begins in the second phase. Of crucial importance are the financing plan and the financial model. In order to ensure the availability of the financing in good time, it is recommended that banks and investors are involved as early as possible in the planning process. COMMISSIONING Step 3 This phase is a particularly critical part of the project as this is when the project is accepted by the sponsor and because the ability to invoice the services is dependent on the full functionality of the asset. From the bank’s point of view, once the project has been properly accepted and commissioned one of the core risks – the completion risk – has been eliminated. CONSTRUCTION Step 2 In the construction phase it is essential to complete the investment on time, within the planned budget and accord - ing to the specifications and the functionality laid down in the construction contract. Initial tests lead to the commissioning. OPERATION Step 4 In the operating phase, the asset is managed and continuously maintained. The generated revenues cover the run - ning costs and are used to amortise the financing. 6
THE ELEMENTS OF A PROJECT FINANCE <strong>AG</strong>REEMENT AT A GLANCE As project finance transactions are mainly cash-flow-oriented, the collateral is derived primarily from the assets of the project itself. This characteristic is taken into account through contractual features typical for project finance: • Lender(s) A bank (or a syndicate of banks led by an arranger) • Borrower A special purpose company in which the sponsors hold shares • Tenor Up to 15 years is generally acceptable, longer tenors are possible; the maturity is usually shorter than the maturity of the concessions, off-take agreement etc. covering the project • Repayment No repayment of principal during the construction phase; sometimes tailored repayment schedules • Interest Capitalisation of interest during the construction phase can be agreed; scheduled interest payments during the operation phase • Collateral Collateral, securities and assignment of rights, step-in rights, etc. • Financial covenants These include, among other, debt service coverage ratios (DSCR), the maintenance of reserve accounts for debt service (DSRA), major repairs (MRA) and other purposes • Employment of cash flows “Waterfall Principle”: Sequence of employment of cash, i.e. initially covering all direct expenses indispensable for the operation of the project, lower in priority rank debt service and, lastly, dividends payable to the sponsors [see chart]. The Waterfall Priciple (cash flow waterfall) Income Insurance Material costs Operating costs Maintenance cost Interest Repayment of principal Dividends 7
Page 1: www.investkredit.at PROJECT FINANCE
Page 4 and 5: DIFFERENCES BETWEEN CORPORATE LENDI
Page 8 and 9: EXAMPLES OF SUCCESSFUL PROJECT FINA
Page 10 and 11: REASONS FOR PROJECT FINANCE • Ren
Page 12: IMPRINT Published by: Investkredit

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