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Index
Cover Page
Title Page
Copyright Page
Dedication
Preface
Acknowledgments
Abbreviations
OUTLINE
PART I. INTRODUCTORY
Chapter 1. Overview of International Project Finance
A. What Is International Project Finance?
1. A Type of Structured Finance
2. Comparison with Corporate and Sovereign Finance
B. Basic Characteristics
1. Special Project Vehicle
2. The Revenue Stream
3. Non-Recourse or Limited Recourse Financing
4. Risk Identification and Allocation
5. Complex Documentation
6. Highly Leveraged Capital Structure
7. Diversity of Lenders
8. Different Types of Lenders for Different Stages
9. Back-Up Credit Support
10. Project Accounts
11. Security over Project Assets
12. Intercreditor Issues
13. Renegotiation and Restructuring
14. Unique Dispute Settlement
15. Long Term Nature
C. Main Participants
1. Host Government
2. Sponsor
3. Lenders
4. Special Project Vehicle
5. Other Equity Investors
6. Engineers and Other Technical Experts
7. Contractors
8. Providers of Back-Up Credit Support
9. Hedge Providers
10. Purchasers and Users
11. Input Suppliers
12. Operator
13. Advisors
D. Main Stages
1. Pre-Construction Phase
a. Pre-Feasibility
b. Feasibility Phase
c. Preparation and Procurement Phase
2. Construction Phase.
3. Completion Testing/Start-Up Phase
4. Operational Phase
E. Documentation
F. Why Would a Sponsor Choose to Use Project Finance?
1. Disadvantages
2. Advantages
Chapter 2. The Role of Lawyers in a Project Financing
A. Overall Staffing of an International Project
B. General Role of Lawyers
C. Legal Work by Phases of the Project
1. Pre-Feasibility and Feasibility Phases
2. Preparation and Procurement Phase
3. Construction Phase
4. Completion Testing/Start-Up Phase
5. Operating Phase
D. “Project Side” and “Finance Side” Legal Work
PART II. PROJECT PREPARATION AND STRUCTURING
Chapter 3. Risk Identification and Due Diligence
A. Risk Analysis
1. The Importance of Risk Analysis
2. Methods of Risk Classification
3. The Risk Matrix
B. Legal Due Diligence
C. Specific Due Diligence Issues
1. Environmental, Social, and Community Relations Issues
2. Corruption
3. Public-Private Partnership Arrangements
4. International Investment Law
5. Use of Derivatives
6. Dispute Resolution Planning
Chapter 4. Project Procurement
A. General Procurement Principles and Methods
1. Basic Objectives
2. Methods of Achieving These Objectives
B. The Procurement Process
1. Selection of the Rules
2. Basic Stages
C. General Issues That May Require Legal Input
D. Special Considerations in the Award of Concessions
1. Need for Flexibility in the Bidding Process
2. Unsolicited Bids
3. Role of Finance in the Award of Concessions
E. Site Acquisition
F. Summary of the Importance of Procurement
Chapter 5. Structuring and Governing the Sponsor’s Interest in the Project
A. Overview of Project Structuring
1. The Process
2. Sponsor Objectives
B. Basic Considerations
1. Tax
2. Accounting
3. Limited Liability
4. Control and Management
5. Bankruptcy Remoteness
C. Structuring the Special Project Vehicle
1. The Options
2. Selecting the Best Option
3. Most Common SPV Forms
a. Corporation
b. Partnership
c. Unincorporated Joint Venture
D. Structuring the Chain of Investment
1. Objectives
2. Methods of Meeting Objectives
E. Structuring the Relations Among the Owners
1. Financial Issues
a. Contributions of the Participants
b. Willingness to Provide Supplemental Credit Support
c. Profits, Reserves and Distributions
2. Management and Control Issues
3. Checklist of Provisions of an Agreement Among Owners
F. Governing the Sponsor, the SPV, and the Project
Chapter 6. Creating the Overall Structure of the Project
A. Basic Lender Concerns
B. Project Finance Techniques and Structures
1. Contractual Credit Support
2. Deficiency Agreements
3. Reserve Based Finance
4. Advance Payment Financing
5. Lease Financing
6. Charterparty Contract
7. Construction Trust Financing
8. Hybrid Project Financing
9. Project Accounts
10. Public-Private Partnerships
11. Equity Funding Techniques for Project Developers
PART III. PROJECT DOCUMENTS
Chapter 7. Overview of Project Documents
A. Main Project Documents and Their Functions
B. The Need for Consistency in Drafting: The Back-to-Back Concept
C. Relief Events
D. Differences in Civil and Common Law Approaches to Project Finance Documents
Chapter 8. Concession Agreement
A. The Basic Legal Framework
B. Design of Individual Agreements
C. Potentially Contentious Clauses
1. Completion Date and Liquidated Damages
2. General Relief Events
a. Materially Adverse State Action
b. Hardship or Economic Balance
c. Stabilization (or Change in Law)
d. Force Majeure Clause
3. Termination and Compensation for Termination
4. Waiver of Sovereign Immunity
5. Dispute Settlement
D. Specific Lender Interests and Concerns
1. Step-In Rights
2. Adequate Compensation in the Event of Termination
3. Security Interests in SPV Concession Rights
4. Assignment of SPV Concession Rights
5. Amendment Approval Rights
6. Direct Agreement
Chapter 9. Construction Contract
A. Main Types of Construction Contracts
B. Type of Contract Most Commonly Used in International Project Financings
C. Standardization of Construction Contracts
D. The Key Parties Involved in the Construction Process
1. Employer
2. Contractor
3. Engineers
E. The Basic Legal Concerns of the Employer, the Contractor and the Lenders
F. Main Legal Issues in Construction Contracts
1. Type of Contract
2. Responsibility for Defects in Project Design
3. Extension of the Completion Date
4. The Types and Role of Liquidated Damages
5. Determining When Construction Has Been “Completed”
6. Adjusting or Reopening the Fixed Price
7. Payment Procedure
8. Compensating for Poor Contractor Performance
9. The Force Majeure Clause
10. Special Dispute Resolution Measures
Chapter 10. Operating Agreements: (1) Supply Contract and (2) Operation and Maintenance Contract
A. Overview of Operating Agreements
B. General Lender Interests in Operating Agreements
1. Supply and Performance Risks
2. Market and Demand Risks
3. Risk Mitigation
C. Supply Contract
1. Lender Interests
2. Risk Mitigation
D. Operation and Maintenance Contract (The O & M Contract)
1. Lender Interest
2. Risk Mitigation
Chapter 11. Operating Agreements: Offtake/User Contracts
A. General Considerations
1. Nomenclature
2. Purpose of Offtake/User Contracts
3. General Types of User/Offtake Contracts
B. Nature of Lender Interest and Risks
1. Supply Side Risks
2. Demand Side Risks
3. The Nature of the Offtaker/User’s Obligation
C. Risk Mitigation Measures
1. Types of Wholesale Offtake/User Contracts
2. Nature of Pricing Provisions
a. Capacity and Energy Charges
b. Price Adjustments: Escalation and Pass-Through Clauses
D. Examples of Offtake/User Contracts and How They Work to Mitigate Risk
1. Power Purchase Agreements: Fossil Fuel Power Plant Projects
2. Throughput-and-Deficiency Agreements: Pipeline Projects and Transmission Lines
3. Tolling Agreements: Processing Facilities (Refineries, Smelters, Power Plants)
4. Ore Purchase Agreements: New Mine Development
5. Charterparty Contracts: Oil Tankers, Cargo Carriers, Drilling Rigs and Platforms
6. Lease Agreement: Power Plants
7. Availability Contracts: Toll Roads
E. Summary of Operating Agreements
PART IV. ARRANGING FINANCE
Chapter 12. Elements of a Finance Plan
A. The Concept of Bankability
B. Funding for Project Preparation
C. The Process
D. Selection of the Lenders
E. The Financial Model
F. Axioms and Basic Principles
1. No Standard Method
2. Diversity of Lenders and Credit Support Providers
3. Blending
4. Changing Market Conditions
5. Differences in Risk Tolerance
6. Role of Public Sector Lenders
7. Debt/Equity Tension
8. Minimizing Refinancing Risk
G. Basic Types of Finance
1. Equity
2. Debt
3. Mezzanine
H. Nature of Equity Investor and Lender Concerns
I. Developing a Finance Plan for a Project Financing
Chapter 13. Main Sources of Finance
A. Factors to Consider in Evaluating Sources of Finance
B. Sources of Equity Finance
C. Sources of Senior Debt Finance
1. Private Sector Sources
a. Commercial Banks
b. Capital Markets
c. Other Private Sector Sources
2. Public Sector Sources
a. Multilateral Development Banks
b. Export Credit Agencies
c. Government Development Finance Institutions
D. Sources of Mezzanine Finance
E. Other Sources of Finance
1. Carbon Finance
2. Islamic Finance
F. Impact of Basel III on Sources of Funding for Project Finance
PART V. CREDIT SUPPORT
Chapter 14. Host Government and Third Party Credit Support
A. Host Government Support
B. Basic Types of Third Party Credit Support
1. Insurance
2. Direct Guarantees
3. Derivatives
4. Letters of Credit
5. Surety Bonds
6. Warranties
C. Commercial Insurance
1. Lenders’ Interest
2. Scope of Coverage
3. Non-Vitiation
4. The Local Insurance/Reinsurance Issue
5. Insurance Provisions in Loan Agreements
6. Bond Insurance
D. Public Sector Support
1. Multilateral Development Banks
a. Guarantees: Partial Risk Guarantee
b. Guarantees: Partial Credit Guarantee
c. B-Loan Programs
d. Political Risk Insurance
e. MDB Halo Effect
f. Currency Devaluation Mitigation
g. Output Based Aid
2. Export Credit Agencies
3. Specialized Bilateral Agencies
4. Public Sector Support for Project Bonds
E. Checklist of Methods of Providing Credit Support for Project Loans and Bonds
Chapter 15. Security over Project Assets
A. Purpose of Security
B. The Importance of Host Country Laws
C. Due Diligence Issues Relating to Security
1. Assets Subject to Security Interests
2. Type of Security Interests
3. The Floating Charge Concept
4. Process for Obtaining Security Interests
5. Assignment
6. Enforcement
7. Rights After Enforcement
8. Limitation on the Use of Security
D. Direct Agreements
E. Typical Project Finance Security Package
Chapter 16. Derivatives
A. General Considerations
1. What Are Derivatives?
2. The Basic Forms of Derivative Instruments
3. The Main Uses of Derivative Contracts
4. Documentation of Derivative Transactions
B. Use of Derivatives in International Project Financings
1. General
2. Mitigation of Financial Risks: Interest Rate; Currency; and Commodity Price
3. Mitigation of Weather Risk
4. Mitigation of Credit Risk
5. Loan Agreement Provisions Dealing with Derivatives
6. Limits on the Use of Derivatives in International Project Financings
7. Added Risks Involved in the Use of Derivatives
C. Intercreditor Issues Raised by Hedge Provider Involvement
PART VI. FINANCIAL DOCUMENTATION
Chapter 17. Overview of Financial Documentation
A. The Functions
B. Types of Financial Documentation
1. Equity Documentation
2. Loan Documentation
3. Documentation for Capital Market Funding
4. Documentation to Govern Intercreditor Relations and Coordination of Project Funding and Collateral
Chapter 18. Syndicated Loans
A. Introduction to Syndicated Bank Loans
1. Nature of Syndicated Loans
2. The Function
3. The Types
B. The Process
1. Mandate Letter
2. Preliminary Term Sheet
3. Information Memorandum
4. Formation of the Syndicate
5. Loan Agreement and Common Terms Agreement
6. Closing
C. Funding of Syndicated Bank Loans
Chapter 19. Structure and Substantive Clauses of Syndicated Loans
A. The General Structure of Loan Agreements
B. Key Clauses Commonly Found in Syndicated Loan Agreements
1. Main Lender Protection and Control Clauses
a. Representations and Warranties
b. Conditions Precedent
c. Covenants
d. Events of Default
e. Loan Acceleration
f. Summary of Main Protection and Control Clauses
2. Other Lender Protection and Control Clauses
a. Reserved Discretion
b. Derivative Transactions
c. Right of Set-Off
3. Change of Circumstances Clauses
a. Illegality
b. Material Adverse Change
4. Margin Protection Clauses
a. Increased Cost
b. Capital Cost
c. Tax Gross-Up
d. Market Disruption
e. Broken Funding
5. Clauses Dealing with Relations Among the Lenders
a. Cross Default
b. Pari-Passu
c. Negative Pledge
d. Sharing of Payments
e. Agent Bank
6. Dispute Resolution Clauses
Chapter 20. Loan Documentation: Ancillary Documents
A. Common Terms Agreement and Closing Documents
1. Common Terms Agreement
2. Closing Memorandum
3. Legal Opinions
B. Loan Administration Documents
1. Agency Agreement
2. Collateral Account Agreement
3. Project Account Agreements
a. Purpose
b. Operational Period Accounts
4. Intercreditor Agreement
Chapter 21. Intercreditor Issues
A. Overview
B. Intercreditor Agreement
C. Specific Intercreditor Issues
1. Preferred Creditor Status: In General
a. The Basic Concept
b. Categories of Preferred Creditors
c. Applications and Consequences
2. Preferred Creditor Status: B-Loan Transactions
a. The Concept
b. The Benefits
3. Hedge Providers
4. Negative Pledge Clause
a. The Concept
b. Application in International Project Financing
5. Offshore Accounts
6. Conflicting Interests in the Pledged Shares of the SPV
PART VII. WHEN PROBLEMS ARISE
Chapter 22. Renegotiation and Restructuring
A. The Need for Flexibility in Project Finance Documentation
1. Automatic Review Clauses
2. Automatic Adjustment Clauses
3. Specific Renegotiation Clauses
B. Elements of a Restructuring
1. The Process
2. Key Elements of a Standstill Agreement
3. Institutional and Organizational Aspects
4. Prerequisites to a Successful Renegotiation/Restructuring
5. Key Variables in a Debt Restructuring
6. The Political and Social Dimensions
7. Potential Problem Areas
8. The Role of the Lawyer
C. Lessons from Major Project Finance Restructurings
Chapter 23. Dispute Settlement
A. Unique Nature of International Project Finance Dispute Settlement
B. Basic Dispute Settlement Options
1. Methods Where the Parties Themselves Agree on a Solution
a. Negotiation
b. Mediation and Conciliation
c. Mediation-Arbitration
d. Dispute Review Boards and Conciliation Commissions
e. Potential Disadvantages
2. Methods Where Third Parties Impose a Resolution of the Dispute
a. Arbitration
b. Litigation
C. The Current Environment
1. Overview
2. Bilateral Investment Treaties (BIT’s)
3. Growth of International Investment Arbitration
D. Key Issues in Investment Dispute Arbitration
1. Conflicting Arbitral Awards on the Same Fact Situation
2. Precedent and Appeal
3. Constraints on Host Government’s Flexibility to Regulate
4. Confidentiality
5. Cost and Time
6. Joinder of Parties and Consolidation of Disputes
7. Umbrella Clause
8. Use of Anti-Arbitration Injunction
9. Challenges to the Jurisdiction of the Arbitral Tribunal
10. Finality and Enforcment of Arbitral Awards
E. Proposals for Change
F. Benefits of Non-Adjudicatory Dispute Resolution
PART VIII. APPLICATION OF PROJECT FINANCE TECHNIQUES TO SPECIFIC ECONOMIC SECTORS
Chapter 24. Infrastructure Projects
A. Infrastructure Generally
1. Public-Private Partnerships
a. Definition of PPP
b. Reasons for Use of PPP’s
c. Types of PPP’s
d. Financing of PPP’s
2. General Characteristics of Infrastructure Projects
a. Generally Reliable Cash Flow
b. Relatively Low Technical/Technology Risks
c. Substantial Government Role
d. The Role of Individuals as Ultimate Offtakers/Users
e. Constraints on Pricing Policy of Infrastructure Projects
f. Risk of Public Opposition to PPP’s
g. Environmental, Social and Human Rights Issues
h. Foreign Exchange Risk
B. Power Infrastructure
1. General
2. Fossil Fuel
a. Characteristics of Fossil Fuel Projects
b. Dealing with Fossil Fuel Project Risks
3. Renewable Energy Projects
a. Characteristics of Renewable Energy Projects
b. Dealing with Renewable Project Risks
C. Transport Infrastructure: Roads
1. Characteristics of Road Projects
a. Minimal Nature of Certain Project Risks
b. Nature of Market and Traffic Risk
c. Political, Environmental and Routing Risks
2. Dealing with Road Project Risks
a. Shadow Tolls
b. Availability Payments
c. Viability Gap Payments
D. Other Forms of Transport Infrastructure: Airports, Ports, and Light Rail
E. Telecommunications Infrastructure
1. Characteristics of Telecommunications Projects
a. Rapid Technological Change
b. Retail Nature of the Market
c. Unpredictability of the Revenue Stream
d. Regulatory and Licensing Requirements
e. Need for Interconnection
f. Right of Way Issues
2. Application of Project Finance Techniques to the Telecoms Sector
Chapter 25. Oil, Gas, and Mining Projects
A. Oil and Gas Projects
1. Sector Characteristics
a. Broad Range of Activities and Stages
b. Global Nature of the Markets
c. Fewer Foreign Exchange Risks
2. Key Risks in the Oil and Gas Sector
a. Reserve Risks
b. Technical Risks
c. Environmental and Social Risks
d. Cross Border and Political Risks
e. Pricing Risks
3. Project Finance Techniques Used in Oil and Gas Sector
a. Upstream (Financing Exploration, Development, and Production)
b. Midstream and Downstream (Financing Transport, Processing, and Delivery)
4. LNG Projects
B. Mining Projects
C. Vessel Financing for Oil, Gas, and Mining Projects
Appendix 1. Example of a Generic Project Risk Matrix
Appendix 2. General Due Diligence Checklist
Appendix 3. Summary of Tax and Accounting Issues
Appendix 4. Checklist of Concession Provisions
Appendix 5. Criteria for Evaluating Debt Finance
Appendix 6. Relevant Financial Concepts and Ratios
Appendix 7. Outline of a Common Terms Agreement
Appendix 8. Reference Material
Index
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