INTERNATIONAL ADVISORY & FINANCE

TYPICAL PROJECT FINANCE ADVISORY MANDATES

Multi-Agency Financing

IAF has been commissioned to design the multi-lateral agency package for this US$1.2 billion project in a politically risky country. Besides the extensive cashflow modelling customarily required for this type of project, IAF has disaggregated the project into a series of BOO developments in order to leverage agency involvement and to provide digestible portions for diverse equity investors. IAF is developing the requisite enabling legislation concurrently with the approaches to EBRD, US Exim, etc. IAF's role is to arrange the debt and equity within a multinational joint venture.

Debt + Equity

Another major assignment is for a US$220million project development. IAF's comprehensive role is to arrange the financing of both the debt and the equity. A Financial Plan has been developed which seeks to attract a joint venture operator and product marketer as well as secure a true turnkey structure for the construction and startup of the project. This particular project requires the maximum political risk coverage. To that end, IAF has presented and registered the project with the various national and multilateral export-credit and political risk insurance agencies around the world and has discussed the turnkey arrangements with the proposed U.S. equipment supplier.

Refinancing

A major IAF advisory role was for a company which was restructuring its financings to more closely match its long-term project-derived contract revenue base. Here, IAF identified the funding options and reduced the first five (options) down to two. A comprehensive computer model was required to fine-tune the debt capacity and to ensure the correct fit of the financing -- repayment structure and term. A full Information Memorandum was developed and presented to the two funding sources. Both responded with termsheet commitments and one bank tabled a fully-underwritten offer of US$180million. The alternative, a private placement in the U.S., was for US$240million. Both were driven by a contract monetisation, a type of securitisation where the repayment is a dedication mechanism from the gross revenues of the contract.

Fuel Supply Contract

IAF was called in to salvage the financing for a $110million development of a new fuel supply for a 600MW power station. The company’s financial advisers and banks had confused the completion obligations to the utility and required excessive recourse to the sponsor. IAF developed three alternatives within 24 hours and was commissioned to develop one of these. This involved negotiation with the (1)power plant developer and its lawyers in the USA and Australia; (2) the government utility’s executive; (3) the company’s own staff; and (4) the new source of funding. In the end, IAF developed a unique means of cofinancing this development with the financiers of the power station by way of a production payment. (IAF developed the first such production payment for a resource development under Crown law in 1980.)

Value Adding The Project Finance community has an aversion to financing projects involving new technology. In this instance IAF was brought in to package the $130million financing for a new project to produce paper for corrugated cardboard (boxes) from wheat straw using a Spanish technology. IAF developed the financial model from the various engineering and marketing studies; set the scope for the Information Memorandum; inspected the plant operating in Spain and developed the appropriate technology and offtake warranty structure as required for the financing; and established the management agreement necessary for the Project’s operations. IAF also scoped the market study and developed the raw-material payment and product-pricing principles to underpin the financial projections. IAF also selected the optimum power configuration (opting to install cogeneration after startup for financing reasons).

There are many other facets to IAF's advisory role in these projects. The above examples illustrate the breadth of the advice and its very early stage of input. We have come to call this "Pre-formation" advisory work.

What the client can always expect from IAF and the network is practical and workable advice very early in the project feasibility definition stage. Its orientation is to determine what can, in the end, be financed in the current marketplace or can be developed into a format to introduce into the market.

This can make the project evaluation process much more efficient -- particularly by avoiding blind alleys.