Project Finance And The Network Of Contracts » Week 1 » Financing And Investing In Infrastructure

Q: Consider the ProjectCo contractual network: Are there any participants who play a dual role?

DUAL ROLE means a sponsor is also linked to the SPV through one or more industrial contracts. ProjectCo CASE Sponsors: Escal is 66.7% owned by ACS Servicios, Comunicaciones y Energia, S.L. (ACS SE, 100% owned by ACS Actividades de Construcción y Servicios, S.A. [ACS]) and 33.3% owned by CASTOR UGS L.P. (controlled by Dundee Energy Ltd.). Enagas has an option to acquire half of ACS SE’s current stake in ProjectCo upon the definitive commissioning of the asset by the authorities Engineering, procurement, and construction (EPC) contractor: Joint venture with joint-and-several obligations between ACS Servicios, Comunicaciones y Energía, S.L. (ACS SE) and Cobra Instalaciones y Servicios, S.A. Operations & Maintenance contractor: Joint venture with joint-and-several obligations between ACS Servicios, Comunicaciones y Energía, S.L. (ACS SE) and Cobra Instalaciones y Servicios, S.A.

Q: Consider the ProjectCo contractual network: Who are the providers of debt funds?

We have seen two main sources of debt funds: Syndicated Loans: A group of banks forms a syndicate to jointly provide a certain amount of funds to construct and manage the infrastructure on a mid-to-long term basis and fully guaranteed by all the assets of the SPV. Project Bonds: investors underwrite debt securities issued by the SPV, which are backed up by the cash flows generated by the cash flows generated by the SPV throughout its life.

Q: Consider the ProjectCo: Which phase or phases is the project in now?

We have seen the lifetime of the project can be divided into the CONSTRUCTION phase and the OPERATIONAL phase. ProjectCo Case: Hint: According to the information provided "The proceeds have been used to refinance ProjectCo's outstanding loans which financed the construction of the project facilities".

Q: Consider the ProjectCo: Which of the following contract(s) do you NOT find in the contractual network?

Consider the contractual network of ProjectCo CASE: CONCESSION AGREEMENT - ProjectCo was granted a 30-year concession (extendable for two 10-year periods) by the Spanish government in 2008 for the re-development of Castor, a depleted oilfield reservoir, originally exploited in the 1970s-1980s off the northern Mediterranean Spanish coast, as a 1.9 billion cubic meter gas storage facility. EQUITY CONTRIBUTION AGREEMENT - Sponsors: Escal is 66.7% owned by ACS Servicios, Comunicaciones y Energia, S.L., and 33.3% owned by CASTOR UGS L.P. SALES AGREEMENT - Off Taker: Spanish gas system CONSTRUCTION AGREEMENT - Engineering, procurement, and construction (EPC) contractor: Joint venture with joint-and-several obligations between ACS Servicios, Comunicaciones y Energía, S.L. (ACS SE) and Cobra Instalaciones y Servicios, S.A. O&M CONTRACT - Operations & Maintenance contractor: Joint venture with joint-and-several obligations between ACS Servicios, Comunicaciones y Energía, S.L. (ACS SE) and Cobra Instalaciones y Servicios, S.A.

Q: What are the motivations for using project finance instead of corporate finance?

We have seen that incorporating the new venture in a SPV brings the following benefits from the project sponsors' point of view: - Financial flexibility is maintained intact; - Possibly cheaper cost of funding of new financial resources for the initiative if compared to corporate loans; - Avoidance of contamination risk. From from the point of view of project lenders/creditors incorporating the new venture in a SPV brings the following benefits: - Full control over the project cash flows; - Easier monitoring focused on one initiative; - Possible tie up of management behavior with covenants and restrictions

Q: Which of the following characteristics of a project makes them suitable for project finance?

For example take the Metro 5 Case we have discussed, what makes it suitable for project finance?

Q: What category or categories of sponsors most typically play a dual role?

DUAL ROLE means a sponsor is also linked to the SPV through one or more industrial contracts. Hint: Think about the Metro 5 Case we saw together.

Q: Which of the following features characterize a Public-Private Partnership (PPP)?

Public Sponsors, who see project financing as an opportunity to realize public works which are economically self-sustaining with limited public investment, enter in an agreement with a Private counterpart (the SPV). Their role is typically based on a Concession Agreement.

Q: Which of the following statements about the contractual network are correct?

Hint: for example take the case of an industrial sponsor who is also the contractor in the construction agreement as we have seen in the Metro 5 Case. Is it not in its best interest to build the facility in the best possible way?