Investor Approach Flashcards
1
Q
How much equity capital is needed for project is driven by (4)
A
- available of debt finance
- existence of equity investment fund
- passive vs active equity fund
- market risk vs long term off take contract
2
Q
Impact lender demand by (4)
A
- proven vs new technology
- access to DSRA
- minimum DSCR
- country risk factor
3
Q
Infrastructure sector continues to attract new capital (5)
A
- demand for asset continues to outstrip supply
- regulatory/tax environment is getting tougher
- infra fund core + asset
- increase number of direct investors
- direct investor are deploying third party capital
4
Q
Sponsor consideration (5)
A
- off balance sheet
- stakeholder management
- risk management
- cash flow driven
- non recourse
5
Q
Sponsor benefit from project finance (5)
A
- flexibility of business agreement and loan covenant
- higher level of credit than direct firm borrowing
- protection of IP, leverage of firm technology
- commercial and political risk diversification
- non-recourse (limited project asset, specific borrowing of specific asset, risk sharing)
6
Q
Project investment criteria (6)
A
- strong contractual relationship
- concession agreement
- is bankable
- cost competitive with existing project in sector
- sponsor able to mitigate technical, political, and commercial risk
- sufficient revenue to provide target IRR and ADSC
7
Q
Macro factor in sponsor investment (5)
A
- overall country status
- regulatory issue (incentive to perform, flexibility)
- resource availability
- concession and tendering process (ability to control)
- financial performance (return and stability)
8
Q
Value consideration for sponsor (5)
A
- IRR: discount factor that provides a break even
- must be > cost of equity capital to be justifiable
- more private equity fund require minimum IRR
- higher IRR is better
- industrial sponsor focus on overall economic success
9
Q
At what time do sponsor contribute equity to project (5)
A
- all equity contributed before loan drawdown
- after drawdown of base facility
- pro rate
- evaluate tradeoff between two opposites
- delay equity contribution improves shareholders IRR but requires higher use of debt
10
Q
Equity improve where (4)
A
- smaller investment: higher amount of leverage
- later investment: bridge loan
- higher cash return: lower debt, amortization schedule, subordinate debt facility
- earlier cash return: amortization schedule, covenant, subordinate debt facility
11
Q
Shareholder loan pros (2)
A
- increase financial flexibility
- avoid dividend trap, allow sponsor to receive interest of the loan, improve IRR
12
Q
Shareholder loan cons (3)
A
- negative equity
- thin capitalization
- higher amount of interest expense can increase loss of first year operation (no dividend distributed)
13
Q
Capital structure (high liquidation, lower risk) (5)
A
- senior debt
- subordinate debt
- hybrid financing
- preferred equity
- common equity
14
Q
Choice of project company structure (4)
A
- corporation: limited liability, ease to transfer ownership interest, ease to create new security over project assets
- general partnership: maximum control, inadequate equity to execute project alone
- limited partnership: allow equity investment by passive investor, pro rate share, full recourse
- joint venture: flexibility, leverage to achieve synergy, risk sharing
15
Q
Phase of product development (3)
A
- preconstruction
- construction
- operation
16
Q
Preconstruction (3)
A
- prefeasibliity: strong business rational, design, viability
- feasibility: hire advisor, compare project, commit further funding
- project preparation: prepare bidding document, finalize
17
Q
Construction (4)
A
- permanent lender: high equity, stand by credit, complete guarantee
- risky
- fixed price lump sum turnkey contract
- EPC provide liquidated damage payable
18
Q
Operation (1)
A
- take out construction lender and reimburse sponsors
19
Q
Project offering memorandum (4)
A
- propose capital structure
- prepare part of application for financing
- description
- background on sponsor and EPC
