What does the expected renumeration of EQUITY HOLDERS depend on?
Operational risk
Investment type, procedure and sector
Financial risk
Capital level that has higher seniority than equity
What are features of Project Finance financing that differentiates it from Corporate Finance financing?
Without recourse
Legal and financial seperation from other assets of the sponsors
Secured (e.g. with mortgage on a property)
What types of guarantees exist?
Real
Pledge on SPV shares
Mortgage on the property
Contractual
With recourse
Contractual forms of bank loans
Bank overdraft facilities
Fixed maturity loans
How can banks get more funds?
Fundraising (mandatory)
Securitization (optional)
Loan syndication (optional)
What are the stages of a syndicated loan?
Origination
Indicative term sheet
Credit application
Binding term sheet
Execution phase
Closing & disbursement
Monitoring
Repayment or restructuring
Difference between “renegotiation” and “restructuring”
Renegotiation: Concerns one individual relationship (possibly more) and amends some elements of the agreement. Not necessarily linked to default.
Restructuring: Redefines the overall agreement of the borrower´s debt exposure
Options in renegotiating
Grant of a new loan
Deferral of payment deadlines
What law systems exist?
Common law: Previous court decisions have a binding effect
Civil law: Law in the form of legal codes
Indicative term sheet - settled view
The indicative term sheet is capable of establishing a pre-contractual liability
-> Obligation to compensate damage as a protection for the legitimate expectation created for the counterparty
Term sheet contents
Object and purpose; property description
Amount and term of loan
Interest rates, margin and fees
Interest rate hedge
Capital drawdown, loan allocation, loan repayment
Main rights and obligations of the parties
Covenants
Events of default
Choice of law and jurisdiction
What does the loan amount depend on?
The project to be financed (value or construction costs)
The security package (collateral)
The creditworthiness of the sponsor
How many credit lines are used in different project types?
Acquisition: Single line
Development: Multiple drawdowns
Depending on covenants: LTC, LTV, DSCR, ICR
Graphic representation of OMV and MLV
What rate is used if a fixed rate is appliacable?
EURIRS (“Euro Interest Rate Swap”)
Interest rate hedging - possibilities
Interest rate swap
Interest rate cap
Interest rate collar (acqu. of cap and sale of floor)
What fees exist?
Arrangement fee
Commitment fee
Agency fee
Syndication fee
Prepayment fee
What is the rationale behind a release factor > 100%?
Reduced LTV
Bad properties are not only sold at the end
Types of mandatory repayment procedures
Pre-amortizing
Bullet
Semi-bullet
Balloon
Fixed repayment plans (fully amortizing)
fixed capital
fixed installment
What types of projects rely on semi-bullets?
Development projects (to fund construction costs)
Interest cover ratio - calculation
Ratio between the operating income and the interest due
Debt service cover ratio - calculation
Ratio between the operating cash flows and the amount of principal and interest due
Yield on debt - calculation
Ratio between the net rental payment and the outstanding loan amount
Events of default - list
Non-payment
Breach of obligation (covenant)
Misrepresentation
Cross default
Insolvency proceedings
Creditors´ process
Unlawfulness and repudiation
Cessation of business
Major damage
Cash trap - explanation
All excess cash flows to be deposited in a reserve account
Credit sweep - explanation
All excess funds are used to pay down short-term borrowing under a line of credit
Cash sweep
Excess free cash flows must be used to pay down outstanding debt
Last changeda year ago
