Title:
Project financing : asset-based financial engineering
Personal Author:
Series:
Wiley frontiers in finance
Publication Information:
New York, N.Y. : John Wiley & Sons, 1996
ISBN:
9780471146315
Available:*
Library | Item Barcode | Call Number | Material Type | Item Category 1 | Status |
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Searching... | 30000010049687 | HG4028.C4 F56 1996 | Open Access Book | Book | Searching... |
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Summary
Summary
This timely book describes an innovative financing technique, using examples and case studies such as Euro Disneyland and the Eurotunnel to walk readers through its essential steps and procedures. Analyzes the shortcomings of unsuccessful project financing attempts.
Author Notes
JOHN D. FINNERTY is Director of Houlihan Lokey Howard & Zukin, an investment banking firm, where he specializes in project financing. A professor of finance at Fordham University Graduate School of Business, he previously worked in the Corporate Finance Departments of Lazard Frères & Co., Morgan Stanley & Co., and as the Chief Financial Officer at College Savings Bank in Princeton, New Jersey.
Table of Contents
Preface | p. XV |
Chapter 1 What Is Project Financing? | p. 1 |
What is Project Financing? | p. 1 |
A Historical Perspective | p. 4 |
Requirements for Project Financing | p. 6 |
Appropriateness of Project Financing | p. 8 |
An Example | p. 9 |
Conclusion | p. 12 |
Chapter 2 The Rationale for Project Financing | p. 13 |
Prior Studies' Explanations | p. 13 |
The Need for Contracts | p. 14 |
The Advantages of Separate Incorporation | p. 14 |
Countering the Underinvestment Problem | p. 16 |
Reallocating Free Cash Flow | p. 18 |
Reducing Asymmetric Information and Signaling Costs | p. 19 |
More Efficient Structuring of Debt Contracts | p. 21 |
More Effective Corporate Organization and Management Compensation | p. 21 |
Project Financing Versus Direct Financing | p. 22 |
Advantages of Project Financing | p. 22 |
Disadvantages of Project Financing | p. 29 |
Conclusion | p. 30 |
Chapter 3 What Is Special about Large Projects? | p. 31 |
How Large Are "Large" Projects? | p. 32 |
Length of Project Contracts | p. 36 |
Initial Project Capital Structure | p. 42 |
Why Studying Project Finance Is Useful | p. 46 |
Why Study How Large Projects Are Financed? | p. 50 |
Conclusion | p. 52 |
Chapter 4 Who Finances Large Projects? | p. 53 |
Sources of Funds for Large Projects | p. 53 |
Project Bonds' Default Risk | p. 57 |
Lead Arrangers, Managing Underwriters, and Advisors | p. 65 |
Conclusion | p. 68 |
Chapter 5 Analyzing Project Viability | p. 70 |
Technical Feasibility | p. 70 |
Economic Viability | p. 72 |
Creditworthiness | p. 74 |
Conclusion as to Viability | p. 75 |
Assessing Project Risks | p. 76 |
Completion Risk | p. 76 |
Technological Risk | p. 77 |
Raw Material Supply Risk | p. 78 |
Economic Risk | p. 78 |
Financial Risk | p. 79 |
Currency Risk | p. 81 |
Political Risk | p. 82 |
Environmental Risk | p. 84 |
Force Majeure Risk | p. 84 |
Implications for Project Financing | p. 85 |
The Cogeneration Project | p. 85 |
Conclusion | p. 87 |
Chapter 6 Designing Security Arrangements | p. 88 |
Purpose of Security Arrangements | p. 89 |
Direct Security Interest in Project Facilities | p. 90 |
Security Arrangements Covering Completion | p. 91 |
Security Arrangements Covering Debt Service | p. 92 |
Types of Purchase and Sale Contracts | p. 93 |
Raw Material Supply Agreements | p. 97 |
Supplemental Credit Support | p. 98 |
Insurance | p. 99 |
The Cogeneration Project | p. 100 |
Conclusion | p. 102 |
Chapter 7 Structuring the Project | p. 103 |
Undivided Joint Interest | p. 103 |
Corporation | p. 111 |
Partnership | p. 114 |
Limited Liability Company | p. 118 |
The Cogeneration Project | p. 119 |
Conclusion | p. 121 |
Chapter 8 Preparing the Project Financing Plan | p. 122 |
General Considerations | p. 122 |
Construction Financing | p. 126 |
Long-Term Financing | p. 127 |
Withholding Tax Considerations | p. 129 |
Estimating the Borrowing Capacity of a Project | p. 129 |
Loan Repayment Parameters | p. 130 |
Borrowing Capacity, Assuming Full Drawdown Immediately Prior to Project Completion | p. 130 |
Borrowing Capacity, Assuming Periodic Loan Drawdowns | p. 134 |
Application to a Hypothetical High-Speed Rail Project | p. 135 |
Annual Coverage Tests | p. 138 |
Conclusion | p. 139 |
Chapter 9 Discounted Cash Flow Analysis | p. 141 |
Incremental After-Tax Cash Flows | p. 142 |
The Hurdle Rate | p. 148 |
Estimating the Cost of Capital for a Project | p. 153 |
Net Present Value Analysis | p. 156 |
Internal Rate of Return Analysis | p. 157 |
Comparing IRR and NPV Analyses | p. 159 |
Conclusion | p. 163 |
Chapter 10 Financial Modeling and Project Evaluation | p. 164 |
Preparing Cash Flow Projections | p. 164 |
Preparing Projected Financial Statements | p. 171 |
Evaluating a Project's Debt Capacity | p. 173 |
Measuring Expected Rates of Return | p. 175 |
Sensitivity Analysis | p. 182 |
Conclusion | p. 184 |
Chapter 11 Using Real-Options Analysis to Evaluate a Project | p. 186 |
Description of the Oil Field Project | p. 186 |
Project's Real Options | p. 187 |
Evaluating the Project | p. 190 |
Traditional DCF Analysis | p. 205 |
Sensitivity of Option Value to Oil Price Volatility and to Reserve Dispersion | p. 206 |
Conclusion | p. 208 |
Chapter 12 Sources of Project Funds | p. 209 |
Equity | p. 210 |
Long-Term Debt Market | p. 213 |
Commercial Bank Loans | p. 214 |
Fixed-Rate Debt Market | p. 219 |
International Capital Market | p. 227 |
Supplier Credits | p. 231 |
Governmental Assistance | p. 231 |
World Bank Loans | p. 236 |
Inter-American Development Bank | p. 237 |
Local Sources of Capital | p. 237 |
Conclusion | p. 238 |
Chapter 13 Managing Project Risks | p. 240 |
Interest-Rate Swaps | p. 240 |
Credit Default Swaps | p. 245 |
Options | p. 251 |
Forwards and Futures | p. 257 |
Hedging | p. 260 |
Hedging with Options | p. 262 |
Hedging Foreign Exchange Risk | p. 265 |
Conclusion | p. 272 |
Chapter 14 Issues for the Host Government | p. 273 |
Contribution to the Host Jurisdiction's Economic Development | p. 273 |
Host Jurisdiction's Expected Economic Return | p. 274 |
Impact on the Availability of Hard Currency | p. 275 |
Exposure of the Host Government to the Project's Obligation to Repay Project Debt | p. 276 |
Desirability of Precedents | p. 277 |
Hibernia Oil Field Project | p. 277 |
Public-Private Infrastructure Partnerships | p. 278 |
Public-Private Financing Structures | p. 280 |
Legislative Provisions that Can Affect Public-Private Partnerships | p. 283 |
Conclusion | p. 287 |
Chapter 15 Case Study: The Indiantown Cogeneration Project | p. 288 |
Project Description | p. 288 |
The Partnership and the Sponsors of the Project | p. 293 |
Principal Project Contracts | p. 296 |
Projected Operating Results | p. 302 |
Project Financing | p. 306 |
Conclusion | p. 318 |
Chapter 16 Case Study: The Tribasa Toll Road Project | p. 319 |
The Mexican Government's Toll Road Program | p. 319 |
Infrastructure Financing Alternatives | p. 321 |
Risk Considerations in Foreign Infrastructure Projects | p. 321 |
Tribasa Toll Road Trust 1 Financing | p. 324 |
Credit Analysis | p. 329 |
Risk Minimization Features | p. 333 |
Conclusion | p. 337 |
Chapter 17 Case Study: The Euro Disneyland Project | p. 338 |
Introduction | p. 338 |
Project Description | p. 339 |
Disney | p. 340 |
Project Ownership Structure | p. 340 |
Master Agreement with the French Government | p. 344 |
Project Financing | p. 346 |
Interests of the Participants in the Project | p. 349 |
Financial Projections | p. 355 |
Valuation | p. 355 |
Corporate Governance Issues | p. 364 |
Operating Results | p. 364 |
Subsequent Developments | p. 366 |
Conclusion | p. 367 |
Chapter 18 Case Study: The Eurotunnel Project | p. 368 |
Historical Background | p. 369 |
The Eurotunnel System | p. 370 |
Project Ownership Structure | p. 371 |
Construction | p. 372 |
Project Financing | p. 373 |
Economic Risk | p. 375 |
Projected Financial Results | p. 380 |
Project Debt Financing | p. 382 |
Project Equity Financing | p. 387 |
Sensitivity Analysis | p. 390 |
Subsequent Developments | p. 391 |
Conclusion | p. 392 |
Chapter 19 Conclusion | p. 394 |
Reaping the Benefits of Project Financing | p. 394 |
Recognizing When Project Financing can be Beneficial | p. 396 |
Potential Future Applications of Project Financing | p. 397 |
Organizational (Re)form | p. 398 |
Financial Engineering | p. 398 |
Appendix A Comparative Terms of Selected Projects | p. 401 |
Appendix B Other Examples of Project Financings | p. 413 |
Appendix C Legal Investment Requirements Governing New York Life Insurance Companies | p. 427 |
Bibliography | p. 433 |
Useful Web Sites | p. 441 |
Notes | p. 443 |
Index | p. 459 |