Power Project Finance Training Course

The objectives of this highly practical course are to:

• Provide you with a power project financing “toolkit” incorporating project risk analysis, debt sizing/structuring and project loan documentation
• Consider the technical aspects of the sector - as they affect a provider of finance
• Explain clearly, and in detail, the project financing techniques and structures typically used in the conventional and renewable power generation industries
• Reinforce learning through the use of case studies which have been specifically designed to illustrate the issues and techniques covered in the course

Scroll down for the agenda or book onto this course.

THE PROJECT FINANCE “TOOLKIT”

1. Project finance essentials

• What is project finance - definition
• Differences between corporate & project lending
• The cashflow “envelope”; cashflow available for debt service (CFADS)
• Why do sponsors choose project finance?
• The risk-reward relationship with the project – sponsors & lenders

2. The Toolbox (1) - Qualitative Risk Analysis

• Sponsor risk
• Country limits / country risk mitigation
• Construction / completion risk
• Technology risk
• Supply issues
• Offtake factors
• Operation & maintenance risk & structures
• Insurance issues
• Consents & approval matters / regulatory hazard
• Environmental & social issues

3. The Toolbox (2) – Debt Sizing & Sculpting

• CFADS – the starting point
• Cover ratios
  – Using the ADSCR
  – Using the LLCR / PLCR as a “sense-check”
  – Cover ratios in debt sizing & stress testing
• Base case design – control of inputs and macroeconomic parameters
• Sensitivity running – what does the banker test?
• The IRR/cover ratio interface
• Impact of control accounts on sponsor return
• Getting to the optimum debt level

4. The Toolbox (3) – Project Finance Loan Documentation

• Control accounts & the cashflow “Waterfall”
  – Types of control account - disbursement, revenue, compensation, debt service reserve & maintenance reserve accounts
  – The cashflow waterfall – purpose, typical priority ranking and variations
  – The documentation process
         * Keeping it tight and focused
         * The lender / borrower / counsel interface
         * Different approaches to the term sheet
         * Designing the term-sheet for economy while covering the key commercial issues
• Documentary terms and conditions
  – The “boiler-plate” – understanding the jargon
  – The key “command & control” mechanisms in project finance agreements
         * Conditions precedent
         * Reps & warranties
         * Covenants
         * Events of default
• Borrower/sponsor needs and “hot-buttons” – what does everybody argue about most?
  – Accessing the loan facility
  – Pricing issues
  – Operating flexibility & control
  – Cash-traps & “IRR-killers”

POWER PROJECT FINANCE – SECTOR PRACTICE

1. The Technical & Market Background

• Conventional power generation
  – Coal-fired technologies
  – Fuel oil firing
  – Gas-fired
         * Open & combined cycle
  – Nuclear power
  – Pumped storage
• Renewable technologies
  – Wind
  – Landfill gas
  – Biomass
  – Hydro
  – Wave/tidal energy
  – Solar
         * Thermal & PV
• Development of liberalised, regulated power markets
  – Genesis of the private power markets
  – How private power markets work
  – Classic role & powers of the regulator
  – Role of the regulator in encouraging renewables

2. Risk Features of Power Project Finance – key drivers for debt structure & pricing, especially:

• Offtake regime – PPA/tolling/merchant/feed-in tariff/renewable certificates
• Technology issues
• Operation & maintenance regime

3. Power Project Finance Methodologies – debt structures for conventional power (PPA, tolling & merchant) & renewable power (feed-in tariffs & renewable generation certificates) compared and contrasted in terms of:

• Debt/equity ratios and structures
• Risk allocation patterns
• Debt maturity
• Debt pricing levels
• Repayment profile sculpting methodologies
• Key “command and control” features:
  – Drawdown control
  – Servicing subordinated debt
  – Dividend lock-ups
  – Event of default ratio
• Security structures
• Third party agreements
• Other documentation features:
  – Representations & warranties
  – Conditions precedent
  – Undertakings

4. The Impact of Credit Crunch on the Power Project Financing Sector

KEY POWER PROJECT FINANCING CONTRACTS – THE POWER SALE ARRANGEMENTS

The way in which power is sold (PPA, merchant, tolling, feed-in tariff with preferential despatch etc.) is arguably the most important determinant of project debt structure and therefore these agreements are worthy of particular attention. During the course the key features of different power sales agreements are discussed in depth, in particular as regards the way in which risks are allocated and how this affects the amount and cost of the debt which can be raised.

KEY POWER PROJECT FINANCING CONTRACTS – OPERATION & MAINTENANCE AGREEMENTS

Because the predictability of stable cashflow is critical in determining the risk appetite of a lender, the operation & maintenance regime to be applied in a power project is analysed very carefully by its debt providers. During the course the key risk transfer provisions of O&M agreements – and their limitations - are reviewed in detail.

PUTTING IT INTO PRACTICE – POWER CASE STUDIES

The course has a strong practical emphasis throughout, but case studies are used particularly to reinforce learning. There are three basic types of case study:

1. Mini-Cases – shorter class-based sessions where participants are required to identify the pros and cons of a project from a bankability perspective, and also to set out requirements for additional due diligence.
2. Peer Review Committee Sessions – more intensive cases where the Course Faculty acts as presenter and four participants are selected to act as a committee to screen new transactions before they go to full Credit Committee.
3. Term Sheet Case Studies – exercises where the course participants are required to review a project financing term-sheet for completeness and acceptability from the perspective of either the Lender or the Borrower.

The sector focus of the cases used will depend in part on the particular interests of each trainee group. When this course has been delivered on an in-house basis, case study topics have included combined cycle gas, power & desalination, wind-power, biomass, CHP and photovoltaic projects.

Participants will leave the course with a thorough practical understanding of:

• How lenders analyse power projects – from both a qualitative and a quantitative perspective
• How project financings are sized and tailored to the cashflow of a specific project
• The loan documents which govern a financing and how they interface with the other project documents such as power sales agreements, EPC contracts, supply agreements and insurance arrangements.