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TAPPING INTO FINANCING OPTIONS

TAPPING INTO FINANCING OPTIONS. Delivering GROWTH BY PARTNERSHIP Sharing UK Capabilities In PPP 19-20 February 2014 Kingston, Jamaica. Options for funding.

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TAPPING INTO FINANCING OPTIONS

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  1. TAPPING INTO FINANCING OPTIONS Delivering GROWTH BY PARTNERSHIPSharing UK Capabilities In PPP19-20 February 2014Kingston, Jamaica

  2. Options for funding • - Options depend on what type of PPP, e.g., if design build operate (DBO), up front capital costs are financed by the public sector – so government’s usual finance resources engaged (taxes, capital markets, etc.) • - Example Yarl’s Wood immigration detention centre, England, a DBO PPP project • - This is different to a design-build-finance operate (DBFO), where initial capital costs met by private sector • - In such cases (i.e., as DBOs) the “private” portions of the public-private-partnership (PPP) are: (i) private sector expertise and (ii) single point of responsibility through project company. But not private sector funding.

  3. Financing PFIs (Structure) • Typical structure of a Private Finance Initiative (PFI) project: • (i) special purpose vehicle (SPV) as “Proj Co” (ii) “Hold Co”/sponsors who will provide equity capital to Proj Co(iii) private sector finance into Proj Co(iv) key sub-contracts typically Construction Contract and Operation & Maintenance subcontracts

  4. Financing PFIs (Categories) Categories of financing include: - Equity capital • - Senior Debt • - Mezzanine finance • - Junior Debt • - Enhancements (guarantees, LCs, partial risk guarantees, state support) • - Hedging instruments (interest rates, currency, inflation risks) • - Consider role of insurance (commercial, political risks)

  5. Financing PFIs/Infra projects (Sources) • Sources include: • - commercial banks • - bonds/capital markets; monolines • - development finance institutions (DFIs) e.g., KfW (Germany), IADB, World Bank/IBRD, EBRD (Europe) • -export credit agencies (ECAs) e.g., US-Exim, JBIC (Japan), KEXIM (South Korea), • - multilateral financial institutions e.g., IFC, FMO (Dutch), EIB (European Investment Bank) • - host country government

  6. Role of institutions • - Institutional investors (e.g., pension funds, mutual funds, insurance companies) • - Privately placed or public bonds • - Need for some form of credit enhancement (new mezzanine type approach) • - Examples: • - KPMG’s Hadrian’s Wall Capital Fund (HWC) initiative- Salford social housing project, £72M by pension insurance institution, 2013 • - EU Project Bond Initiative (PBI)- Spanish Castor gas storage project • - Prudential M&G’s Alder Hey hospital project UK using in-house mezzanine enhancement • - ING PEBBLE bank structure- Netherlands Zaanstad prison project • - Still monolines- Leeds social housing deal in the UK, Assured Guaranty, 2013 • - Norwegian bonds (predominantly energy projects) • - View that institutions are the natural buyers of syndicated debt, but after construction

  7. Financing after first financial close • Usually after construction complete- Commercial bank refinancing • -Private equity fund interest in secondary PPP market • - Capital markets

  8. Accounting treatment • - Risk Distribution and Balance Sheet Treatment • - Example ESA95 (Europe) manual on government deficit deals with whether a project will go on or off the Government's balance sheet. • - European PPP Expertise Centre has developed extensive checklist for this • - Differences in accounting under GAAP versus IFRS

  9. Additional information • - Financing process (timetable) • - Parties (bank, agent, trustee, account bank, etc) • - Documents (arranging mandate, term sheet/LoI, main finance agreement e.g., Facility Agreement or bond document/circular, intercreditor agreement, etc) • - Grant of security interests • - Covenants and monitoring; consequences

  10. Contact • Vanessa N. Rizziolivrizzioli@mahoeconsulting.comTelephone (London) : +44 (0) 20 8874 7390Mobile (London): + 44 (0) 780 178 1969Mobile (Jamaica): + 1 (876) 343 3885

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