Comprehensive Guide to Public-Private Partnership Financing

1. Financing Essentials for Public-Private Partnerships United Nations SU/SSC Training Course September 19, 2006

2. Financing of Private Public Projects • Role of Financial Counterparty • Funding Resource • Professional Expertise • Project Oversight and Monitoring • Objectives of the Financial Counterparty • Policy Goals and Objectives • Proper Risk- Reward Relationship • Market Rates of Return • Financial • Social

3. Financing of Private Public Projects • Universe of Financial Counterparties • Commercial Banks • Investment Banks • Multilateral Organizations • Development Banks • Non-Profit Organizations • Local, Provincial and National Governments • Multinational Development Companies • Pension and Investment Funds • Infrastructure Equity Funds • Sources of Funding • Debt • Equity • Quasi - Equity

4. Financing of Private Public Projects • Debt • Bank Loans • Bond Offerings • Domestic or International Public Markets • Local or Foreign Currency Denomination • Senior/Mezzanine/Subordinated Debt • Equity • Initial Funding • Long Term Investment • Change of Control Provisions/Replacement Standards • Return Expectations • Ongoing Financial Support

5. Financing of Private Public Projects • Quasi-Equity • Cash Contributions • Grants • Subsidies • Support Agreements • Guarantees • Certain Forms of Debt

6. Application of Funds • Direct Project Costs • Development Costs • Design • Site Acquisition • Construction • Equipment/Rolling Stock

7. Application of Funds • Finance Costs • Capitalized Interest • Reserve Funds • Debt Service Reserve • Maintenance Reserve • Working Capital Reserve • Transaction Costs • Structuring Fees • Commitment Fees • Legal Fees • Credit Enhancement Fees • Financial Advisory Fees

8. Project Risk Assessment • Type of Project • Greenfield v. Brownfield • Sector • Service Area • Mature or Developing Market • Project Evaluation and Economics • Project Need • Sources and Uses of Funds • Market Analysis • Project Rationale • Competition • Pricing Structure • Market Competitiveness

9. Project Risk Assessment • Project Financial Forecasts and Sensitivity Analyses • Development of Key Assumptions • Identification of Sensitivities • Analysis of Sensitized Cashflows • Revenue Shortfalls • Construction Costs • Interest Rates • Inflation • Currency Fluctuation

10. Legal and Environmental Requirements • Legislation/Regulation/Tax Policy • Contract Law • Public Private Partnerships • Environmental • Land Use • Other • Project Documentation • Concession Agreement • Construction Contract • Operations and Maintenance Contract • Supply or Off-take Contracts

11. Legal and Environmental Requirements • Concession Agreement • Term of the Concession • Revenue Tail • Allocation of Risk • Termination Provisions • Payment Mechanism • Deduction Regime • Lenders’ Rights • Insurance Provisions

12. Legal and Environmental Requirements • Construction Contract • Fixed Price/Date Certain • Types of Technology/Track Record • Warranties and Guarantees • Construction Performance Support • Liability Cap • Liquidated Damages • Lenders’ Rights • Role of Technical Advisor/Scope of Services • Contingency Levels

13. Legal and Environmental Requirements • Operations and Maintenance Contract • Scope of Services/Complexity • Duration • Price/Payment • Pass Through of Deductions • Benchmarking and Market Testing Provisions • Operations Performance Support

14. Legal and Environmental Requirements • Supply and Off-take Arrangements • Duration • Terms • Price • Price Adjustment Mechanisms • Financial Documentation • Bond Indenture/Loan Agreement • Intercreditor Agreement • Lenders’ Direct Agreements

15. Evaluation of Main Project Parties • Borrower • Shareholders • Construction Contractor and Subcontractors • Service Operator(s) • Multilateral Agencies • Local Authorities • Other Public Sector Counterparties • Suppliers • Off-takers • Co-Lenders • Advisors

16. Project Security • Forms of Security • Revenue Pledges • Mortgages • Liens on or Assignment of Various Assets • Guarantees • Letters of Credit • Implicit/Explicit Public Sector Support

17. Project Security • Reserve Funds • Types of Reserves • Maintenance Reserve • Operating Reserves • Dividend Reserves • Others • Funding Requirements • Amounts/Sizing • Timing • Replenishment • Source of Funding • Release Tests/Dates

18. Risk Evaluation • Design and Construction Risk • Operating Risk • Commercial Risk • Sufficient Demand • Pricing Levels • Affordability • Collection • Regulatory Risk

19. Risk Evaluation • Macroeconomic and Sovereign Risk • Legal Risks • Financing Risk • Debt Structure • Termination/Prepayments • Foreign Exchange/Currency • Market Risks • Interest Rate • Inflation Sensitivities • Currency Volatility

20. The Decision • Evaluation of the Risks and Mitigants • Identification of the Strengths and Weaknesses of the Transaction • Risk v. Reward Analysis • Decision Processes • Governmental • Investment Banks • Commercial Banks • Multinational Organizations • Equity Investors

21. Business Terms • Security Package • Construction Support Package • Operator Support Package • Gearing Requirements • Drawdown Schedule • Term of the Financing • Flow of Funds • Representations and Warranties • Conditions Precedent

22. Business Terms • Financial Covenants • Interest Coverage Ratios • Debt Service Coverage Ratios (historical and projected) • Loan Loss Coverage Ratio • Dividend Payout Restrictions • Events of Default/Remedies • Credit Ratings • Derivative Products

23. After Financial Close • Drawdown Process and Procedures • Interest Rate Resets and Rollovers • Repayments and Prepayments • Portfolio Review and Monitoring • Construction Monitor • Monthly/Quarterly/Annual Financial Reporting • Lifecycle Costs • Covenant Compliance • Insurance Advisor • Waivers/Consents/Amendments