Fundamentals of Infrastructure Finance

This three day workshop will provide participants with an enhanced understanding of the financing and structuring of Infrastructure transactions focusing on: Options for public sector users The impact of the credit crisis Objectives of the parties involved both from a public and private sector perspective Risk and return requirements Key financial sensitivities Debt finance and implications of the credit crisis The role of infrastructure funds Factors influencing the choice of corporate or project finance Capital structuring decisions Valuation issues for infrastructure projects and companies Some critical aspects of debt financing documentation Course Overview The financing of Infrastructure represents a major opportunity and challenge, given the scale of potential infrastructure development as a result of Ageing infrastructure in many developed economies Need for infrastructure in many developing economies to support economic growth Attempts by governments and supranational agencies to mitigate the impact of the credit crisis by accelerating spending on infrastructure projects Traditional methods of financing infrastructure projects are no longer sufficient to finance Infrastructure projects, leading to increased use of Public Private Partnerships, and development of Infrastructure Funds as potential sources of funds. There has also been a change in approach in recent years about “risk sharing”, “accountability” and “Value for Money” resulting in changes in how services for how services to public sector users are procured and performance evaluated. This programme will provide participants with a sound understanding of the key issues in Infrastructure Finance so that they can develop a clear understanding of the factors influencing the choice of financing methods for infrastructure projects; the motivations of the parties involved; risk evaluation and allocation; capital structuring issues; and lessons from the past Who should attend? This training programme will be relevant to personnel involved in the financing and / or financial evaluation of Infrastructure projects that are looking to obtain an intensive overview of key issues relating to the financing of large scale Infrastructure projects including personnel working for: Governments and public sector agencies Equity investors, including private equity firms and infrastructure funds Project sponsors Commercial banks Development finance institutions Export credit agencies Contractors Consultancy firms Participant Profile Participants should already be familiar with the fundamental principles of business risk analysis and investment appraisal techniques, key aspects of company valuation, the core functions of Microsoft Excel, and the key features of the principal financial instruments. Limited practical experience of debt financing instruments in the context of an Infrastructure Finance will be assumed. Training Methodology Case studies from both developed and developing economies will be the main focus of the teaching methodology with examples primarily based on the major areas of public infrastructure, such as: Roads Ports and airports Transmission lines ( power and energy) Metro systems Water Social Infrastructure ( Health and Education) Case studies will also include review of key issues relating to the evaluation of project investors involved in Infrastructure projects.
Day 1 Introduction Overview of an infrastructure project to illustrate key aspects of the financing Issues for government in the financing of infrastructure Budgetary issues and the impact of the credit crisis Sector restructuring Options for the financing of public sector infrastructure assets – from operating contracts to privatization Value for money in the procurement of public sector services vs political and social issues Ownership vs use of public sector assets Policy, legal and regulatory environment Case study: working in groups, participants are given background on an infrastructure sector and make their recommendations on the most appropriate approach to the financing of the sector Key players in an Infrastructure Finance Roles and objectives of the parties to an infrastructure finance Potential conflicts of interest and potential differences in public sector and private sector objectives Exercise: review of an infrastructure project to illustrate the role of the various stakeholders and potential conflicts of interest; review of background of a company actively involved in infrastructure transactions to evaluate their approach to infrastructure finance Risk identification in infrastructure projects and lessons of experience Risk areas Lessons of experience - Mega projects and risk - lessons from the transportation sector including the London Underground, road concessions and the power sector - The infrastructure boom and impact of the credit crisis in terms of risk assessment, growth assumptions and corporate valuations Exercise: Rating an infrastructure project - participants are given background on an infrastructure project and develop a rating Analysing credit risk of sponsors involved in infrastructure finance Different elements of cash flow - EBITDA - Cash from operations - Cash available for debt service - Free cashflow - Cash available to equity investors in a project finance structure Financial analysis of corporates involved in Infrastructure projects - Quantitative indicators and typical ratios used in financial analysis - Qualitative factors Project vs corporate related cashflow analysis Exercise: participants review the financial statements of a corporate investing in infrastructure finance as a basis for assessing their financial strength as an operator of Infrastructure projects Risk mitigation and allocation in infrastructure projects How are risks typically allocated? Guarantees and credit enhancement Exercise: participants are given background on an infrastructure finance and looking at the transaction from either an investor or User perspective negotiate key aspects of the risk allocation Day 2 Reviewing business plans for Infrastructure projects Are the assumptions realistic? Peer group analysis Identifying and sensitising key financial risks in a PPP transaction Cashflow related ratios - DSCR - LLCR Exercise: participants assess the viability of the assumptions in support of a project and review and sensitise the financial model to establish the potential viability of the project and key influences on the project Debt financing issues Impact of the “credit crisis” on the debt markets for Infrastructure projects Corporate finance vs project finance issues – factors influencing the capital structuring decision - Debt vs equity - Leverage objectives - Loans vs bonds Potential involvement of various financial institutions / instruments and influencing factors - Development finance institutions - Export credit agencies - Commercial banks - Leasing - Capital markets - Government support for infrastructure finance Local vs foreign currency finance The use of subordinated / mezzanine debt Interest and currency exposure management Review of selected PPP transactions, both corporate and project finance funded, to illustrate the debt financing structure. Exercise: working in groups participants make recommendations on the debt finance in support of an infrastructure finance transaction   Day 3 Key Corporate Finance concepts – valuing Infrastructure projects Time value of money Concepts, definitions and examples Future values Present values Equity/ debt leverage and how this relates to the structure of PPP transactions Investment appraisal techniques (accounting rate of return, payback, IRR, NPV) Capital asset pricing model Examples to illustrate the use of investment appraisal techniques and risk and return for selected project investments Case study: in groups, participants bid for an airport concession Sources of equity finance for Infrastructure Finance transactions Equity investors’ perspective – risk and return in an Infrastructure project; valuation issues The role of infrastructure funds and private equity Understanding the equity investor’s approach to achieving returns from the project company, including operating relationships with the project company, and cash extraction through re – financing Case study: review of background on a corporate operating in the Infrastructure area to evaluate their approach to capital structuring Key commercial terms and protections for debt providers in PPP and Infrastructure Finance documentation O&M contract Concession, BOT, BOOT contract Variations on construction related contracts Operating and maintenance/ affermage contract Loan documentation - Covenants - Third party credit support - Security - Cashflow - Debt service reserve, escrow and maintenance accounts Termination provisions Exercise: working in teams, participants review and develop of a summarised debt financing term sheet for an Infrastructure Finance transaction Course summary and close