6 June 2012        Project BondsAdam Nicolopoulos, President & CEO
The Debt Markets  Commercial              The Public    Banks                Market - Bonds   Benchmark         +      Mar...
Different Debt Markets of ExecutionDistinct differences between the bond and bank debt markets            Bank financing  ...
Selected projects bonds internationally (in    2002)OECD countries♦   Australia     Melbourne Citylink   US$647m     A-/AA...
The Mandate & ChallengeWere mandated to raise the most money at the lowest cost and withinthe shortest possible timescale ...
Bina Istra’s shareholders (in 2002)♦ Bina Istra has two main shareholders   — Bouygues Travaux Public with 50.2%   — Hrvat...
BINA-Istra: building Phase 1A         Attention to quality and budget management  Photo is courtesy of Bouygues Constructi...
BINA-Istra: operation of the motorway           Discipline on costs and attention to safetyPhoto is courtesy of Bouygues C...
The Rating Process (require a min of tworatings)     Rating I                  Rating II                         rating:  ...
Some time the cashflow is not adequate                              800                              600  Millions of Euro...
Concession - a practical payment mechanism        that works                    Costs         =      Revenues             ...
Financing structure for Bina Istra  Debt package                                   Revenue stream                         ...
Major challenges that had to be addressed◆   Untested markets◆   Lack of precedents◆   Absence of long-term maturity in th...
Elements of Debt – Highlights♦   One-shot approach & unforgiving market♦   Who and where are the investors?♦   Negative Ca...
Summary of (current) financing trends (…back in 2003)♦ Banking universe is consolidating limiting the availability of  ban...
The Investment Banker as Advisor or …“Architect” ♦ Financial Advisor – deal manager and coordinator? ♦ Client team ♦ Techn...
Revenues and expenses breakdown           100,000            90,000            80,000            70,000            60,000(...
Significantly improved financial structure                                                        Final deal (Feb 2003)   ...
Attractive cost of funding …… and pan-European distributionCroatia and Bina Istra bond performance,2003-2004              ...
Expeditious transaction timetable                                    May   Jun   Jul   Aug   Sep   Oct   Nov   Dec   Jan  ...
BINA-Istra lessonsSome reasons for the success of the project♦ Croatia before 1995: a pioneering role of the sponsor♦ Poli...
Selected projects bonds internationallyOECD countries♦   Australia     Melbourne Citylink   US$647m     A-/AAA       3 to ...
BINA-Istra: building Phase 1B                                   Design excellence Photo is courtesy of Bouygues Constructi...
Construction of Project Financial Model                     Economic assumptions                           Project assumpt...
ADN Capital Ventures, Inc.ADN Capital Ventures, Inc. (“ADN”) delivers financial advisory services to clients who are devel...
Adam D. Nicolopoulos ♦ Involved in over 60 project finance /private finance /concession type transactions in the US and   ...
Our deals♦ Expert witness on an international arbitration case involving a major multi-billion euro road infrastructure pr...
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Edmonton - Project Bonds

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  1. 1. 6 June 2012 Project BondsAdam Nicolopoulos, President & CEO
  2. 2. The Debt Markets Commercial The Public Banks Market - Bonds Benchmark + Margin Multi-Billion Multi-Trillion 1
  3. 3. Different Debt Markets of ExecutionDistinct differences between the bond and bank debt markets Bank financing Bond financingProven track record ( + ) New market ? ( - )Flexible execution Inflexible execution (one-shot)Private market / no rating Public market / with ratingComfortable with construction risk Uneasy about construction riskCommercial covenants are key Indifferent about commercial covenantsLong term Very long termCredit risk-driven Price-drivenLong execution horizon Short execution horizon Potentially much larger providerSomewhat limited provider of capital of capitalCertainty of volume of financing Uncertainty of volume of financingFlexibility for refinancing Inflexible about refinancing 2
  4. 4. Selected projects bonds internationally (in 2002)OECD countries♦ Australia Melbourne Citylink US$647m A-/AAA 3 to 7yr 2002♦ Canada 407ETR US$425m BBB 2/3yr 2001♦ Czech Rep. D47 – – – –♦ France A28 €460m AAA 15/25/30yr 2002♦ Portugal Algarve €126m AAA 26yr 2001♦ South Korea Daejeon Riverside US$107m A 10yr 2001♦ UK A1 £113m AAA 32yr 2003 Connect M77 £152m AAA 31yr 2003♦ USA SR-91 US$135m AAA 27yr 2001Non-Non-OECD countries♦ Chile Various US$16 to AA- to AAA 13 to 23yr 2001/2/3/4 432m♦ China Various US$100 to NR to BBB- 7/8/10yr 1997/8 600m♦ Jamaica Highway 2000 US$130m Private Private 2003 3
  5. 5. The Mandate & ChallengeWere mandated to raise the most money at the lowest cost and withinthe shortest possible timescale Team was to develop a finance plan for Bina Istra, the Istrian Motorways’ Concessionaire, and raise bonds to finance the construction of Phase 1B and refinance Phase 1A bank debt The challenge—to satisfy the commercial and financial objectives of four different groups of parties – issuer/private sector (Bouygues) – government/grantor – investors/bond holders – bank lenders 4
  6. 6. Bina Istra’s shareholders (in 2002)♦ Bina Istra has two main shareholders — Bouygues Travaux Public with 50.2% — Hrvatske Autoceste with 44%♦ Collectively, the state-owned shareholders: (HAC and INA) hold 47%♦ Istarska Autocesta is a small motorway construction company owned by a number of regional municipalities and banks Ownership structure Ina Industrija Bouygues T.P. Hrvatske Autoceste Nafte d.d. 51% 44% 5% BINA Fincom Bouygues T.P. Hrvatske Autoceste Istarska Autocesta d.d. 67% 16% 14.8% 2.2% Bina Istra d.d 100% 5
  7. 7. BINA-Istra: building Phase 1A Attention to quality and budget management Photo is courtesy of Bouygues Construction 6
  8. 8. BINA-Istra: operation of the motorway Discipline on costs and attention to safetyPhoto is courtesy of Bouygues Construction 7
  9. 9. The Rating Process (require a min of tworatings) Rating I Rating II rating: BB+ Ba1 8
  10. 10. Some time the cashflow is not adequate 800 600 Millions of Euros nominal 400 200 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 year of concession (200) Opex Capex (400) Senior debt interest & fees Senior debt repayment Dividends Tax (600) Equity subscribed Debt drawdown Total Revenues (800)♦ In structuring a project financing, sponsors will seek to optimize their capital structure and: – Minimise shareholder funding commitment and maximise project gearing over the life of the concession – back-end equity and sub-debt injections – maximise shareholder sub-debt versus equity – receive distributions as soon as possible!♦ Funders simply want to ensure repayment of their debt 9
  11. 11. Concession - a practical payment mechanism that works Costs = Revenues Liquidity Forecasted tolling Opex revenue + + Bina Istra Debt service 12 month debt Financial service reserve + contribution1 1A-firm Return on equity + + Any intra-year DSRA cash flow shortfall is DSRA amount Replenishment covered by the DSRANote:1 State budget items 10
  12. 12. Financing structure for Bina Istra Debt package Revenue stream Bouygues €210m bond Escrow (construction issue account contractor) Tolling revenues €42m bank Bina Istra dd. loan (Concessionaire) Concession agreement Government Debt €30m financial Service Croatian committed contribution Reserve Government bank standby Account (Grantor) 11
  13. 13. Major challenges that had to be addressed◆ Untested markets◆ Lack of precedents◆ Absence of long-term maturity in the bank market◆ Absence of bank capacity for Croatian un-covered risk◆ Non-investment grade project◆ Phased construction schedule◆ Protection against construction cost overrun risk◆ Very tight timetable (imposed be Government)◆ Emerging markets volatility 12
  14. 14. Elements of Debt – Highlights♦ One-shot approach & unforgiving market♦ Who and where are the investors?♦ Negative Carry♦ “60 secs to explain the deal”♦ “De-personalized” financing♦ Deal must be fully completed♦ Rating-driven – around investment grade (cut off)♦ Like certainly and do not like certain risks (e.g. construction)♦ Fast track process♦ More relaxed covenants♦ More advantageous terms♦ Not easy to refinance 13
  15. 15. Summary of (current) financing trends (…back in 2003)♦ Banking universe is consolidating limiting the availability of bank debt♦ Monoline insurers are coming in closing the gap♦ Increasing role of the international credit rating agencies♦ Emergence of sector-specific sophisticated equity investors— global players♦ Creation of new debt capital markets products—securitisation schemes (market risk)♦ Complex contractual arrangements allow government to raise project funds without those scoring on their balance sheets♦ Mobilisation of local pension fund to fund long-term transport assets 14
  16. 16. The Investment Banker as Advisor or …“Architect” ♦ Financial Advisor – deal manager and coordinator? ♦ Client team ♦ Technical Consultant ♦ Legal Counsel / Project Finance Lawyer ♦ Revenue Consultant ♦ Insurance Consultant ♦ Accountants ♦ Model Auditors 15
  17. 17. Revenues and expenses breakdown 100,000 90,000 80,000 70,000 60,000(€000s) 50,000 40,000 30,000 20,000 10,000 0 2006 2009 2012 2015 2018 2021 2024 2027 Financial cont ribut ion Ucka t unnel revenues M irna bridge revenues Ot her income FC revenue adjust ment O&M , LCC and t ax Debt service + O&M , LCC and t ax 16
  18. 18. Significantly improved financial structure Final deal (Feb 2003) Phase 1A (Jun 1998) Phases 1A and 1B Im provem ent sAmount (t ot al) €174m €428mDebt t ype Tr.1 €87m (COFACE) Tr.1 €210m (Bonds) Tr.2 €18m (int ernat ional) Tr.2 €72m (Bank debt ) Tr.3 €15m (local) Tr.4 €8m (st andby)Annual senior €18m €29mdebt serviceDebt amount €128m €282mRisk Full t raf f ic Very limit ed t raf f icEquit y €20.5m €34mTerm 11.5 years (1.5+10) 19 years (5+14)Spread Tr.1 CIR + 2.00% / 1.25% (COFACE) Tr.1 8.00% Tr.2 LIBOR + 5.00% / 6.00% / 7.00% Tr.2 LIBOR + margin Tr.3 9.00% / 10.00% / 11.00% 17
  19. 19. Attractive cost of funding …… and pan-European distributionCroatia and Bina Istra bond performance,2003-2004 Geographic distribution400.00 Greece Asia Scandinavia Aust ria 3% 3% 1%300.00 6% Benelux UK200.00 6% 39%100.00 France 8% 0.00 Croat ia 2/3/2003 9/3/2004 11% Germany Bina Ist ra 2022 Croat ia 2011 23%Issue pricing Distribution by investor type Insurance Privat e Bank Issue amount €210,000,000 1% 1% Benchmark DBR 6% June 2016 Banks Issue price (%) 100 21% Benchmark spread at launch (bp) DBR +365 Coupon (%) 8.00 Fund 77% 18
  20. 20. Expeditious transaction timetable May Jun Jul Aug Sep Oct Nov Dec Jan FebMemorandum of understandingAppointment of Financial AdvisorLegal counselFinancial modelAmendment of concession agreementFinancial planProcurement of bank debtDiscussion with rating agenciesOffering circularFinance documentsDay closingFinancial close 25 February 19
  21. 21. BINA-Istra lessonsSome reasons for the success of the project♦ Croatia before 1995: a pioneering role of the sponsor♦ Political issues with real toll: a partnership attitude with the Government♦ Flexibility: from real toll to shadow toll, then to a financial support mechanism♦ Strong and experienced financial partners♦ Design management and optimization♦ Knowhow on the permitting and land acquisition process♦ Financial innovation: non wrapped bonds (search for long maturities) 20
  22. 22. Selected projects bonds internationallyOECD countries♦ Australia Melbourne Citylink US$647m A-/AAA 3 to 7yr 2002♦ Canada 407ETR US$425m BBB 2/3yr 2001♦ Czech Rep. D47 – – – –♦ France A28 €460m AAA 15/25/30yr 2002♦ Portugal Algarve €126m AAA 26yr 2001♦ South Korea Daejeon Riverside US$107m A 10yr 2001♦ UK A1 £113m AAA 32yr 2003 Connect M77 £152m AAA 31yr 2003♦ USA SR-91 US$135m AAA 27yr 2001Non-Non-OECD countries♦ Chile Various US$16 to AA- to AAA 13 to 23yr 2001/2/3/4 432m♦ China Various US$100 to NR to BBB- 7/8/10yr 1997/8 600m♦ Croatia Bina Istra €210m BB+/Ba2 19yr 2003 21
  23. 23. BINA-Istra: building Phase 1B Design excellence Photo is courtesy of Bouygues Construction 22
  24. 24. Construction of Project Financial Model Economic assumptions Project assumptions Capital assumptions ♦ Growth rates ♦ Energy tariffs / user fees ♦ Debt size ♦ Inflation ♦ Construction costs ♦ Debt maturityINPUT ♦ Exchange rates ♦ Maintenance costs ♦ ♦ Amortisation profile ♦ Tax ♦ Operating costs DSCRs ♦ Commodity indices ♦ Timing profile ♦ Cost of finance ♦ Equity assumptions Project Operating Data Base case financial model OUTPUT Sources & Construction Funding Revenue Driving Balance IRRsUses of Funds forecasts Cashflow P&L Schedule Assumptions Sheet DSCR Tax & Debt Sizing / Equity Sensitivities Depreciation Funding Risk Analysis 23
  25. 25. ADN Capital Ventures, Inc.ADN Capital Ventures, Inc. (“ADN”) delivers financial advisory services to clients who are developing,financing and implementing transportation, energy and other related infrastructure projects in theprivate and public domains. ADN is led by seasoned investment bankers and finance professionalsin the global capital markets with a successful track record in project execution and wealth ofcorporate relationships.As an independent advisor, ADN focuses on its clients’ interests and provides advice to assist clientsin optimizing and achieving their financial and commercial objectives. Our practice includes strategicadvisory and project development services with an office in San Francisco and presence in Europe.Our team has hands-on experience in a variety of projects such as public-private partnerships (“PPP”),long-term concessions, public projects and privately developed projects, including independent powerprojects, in the United States and internationally. We deliver expertise and provide advisory services onall aspects of infrastructure finance and project development to a broad range of clients. At the sametime our team offers M&A and capital raising consultancy services as necessary.Having operated in over 20 countries, the ADN team brings experience in what makes projectssucceed. Over the last two years our advisory practice has grown, and we currently provideadvisory services on a transaction portfolio exceeding $2.5 billion of aggregate investments.Adam NicolopoulosPresident and Founder,Phone: +1 415-785-4613Cell: +1 415-246-1765 Suite 7Fax: +1 415-532-2873 810 College Avenue, KentfieldE-mail: anicolopoulos@adncv.com California, 94904 24
  26. 26. Adam D. Nicolopoulos ♦ Involved in over 60 project finance /private finance /concession type transactions in the US and internationally; ♦ Total transactional experience exceeds $45 billion of total investment value; ♦ Visiting Scholar at Stanford University’s Collaboratory for Research on Global Projects since November 2007; ♦ Two international “deal of the year” awards for novel infrastructure deals: 2003 and 1997;Adam has spent well over 18 years with UBS Investment Banking Division (London, Zurich, NewYork and San Francisco) focusing on funding transportation infrastructure and energy/powergeneration assets. His clients included private sector developers, contractors, governmentauthorities, and public bodies. In addition to UBS, Adam worked for NatWest Markets (presentlyknown as RBS) from 1994 until 1997 in London in its project advisory group and with MissionEnergy (1994).On the private side, he has advised investors, international contractors and developers in structuringoptimal financing solutions (bonds, bank debt and/or equity financing) and successfullyimplementing financings. In the US, he advised on over 10 PPP/PFI and concession deals,including advising bidders on tenders for the Indiana Toll Road and Northwest Parkway and thedevelopment of two greenfield container port terminals in the Gulf of Mexico. His services includedadvising public authorities and government enterprises, (NJ DOT), on the application of suitablepublic-private partnership models for their infrastructure sector.Mr. Nicolopoulos holds an MBA from Stern School of Business at NYU (honors / full academicscholarship), an MSc in Mechanical Engineering from the University of California, Berkeley (honors)and a BSc in the same field from Columbia University. Certifications include Series 7 and 63. Hehas spoken at over 30 national and international conferences on topics relating to PPPs andfinancial innovation. 25
  27. 27. Our deals♦ Expert witness on an international arbitration case involving a major multi-billion euro road infrastructure project in Europe.♦ Advised a major electronics conglomerate on a M&A buy-side mandate in the US solar renewable sector.♦ Advised a solar PV project developer on structuring and raising funding (equity and debt) toward the development of utility scale projects (around 25 MWs each).♦ Advising on finance strategy and capital raising for start-up technology companies active in the clean & green tech renewable sectors.♦ Advising Sea Point LLC (www.sea-point.net) a private company on the development, structuring and procurement of both equity and debt financing for a private 900,000 TEUs (twenty-foot equivalent unit) container trans-shipment port facility in Venice, Louisiana.♦ Advised CalTrans (California DOT) on efficient development of solar power projects on sites and land controlled by the agency;♦ Advised Solyndra on project transactions;♦ Was involved from the outset in the formation and launching of a $2 billion private equity infrastructure fund targeting the public pension funds in the US and Canada.♦ Member of an advisory team working with TxDOT on the application of PPPs and road concession contracts in Texas.♦ Advising a Caribbean government (confidential) on its national debt restructuring and application of public private partnerships (PPPs) on key transportation infrastructure assets (including an airport, a port, a ferry passenger terminal, and others).♦ Developer (confidential) on strategy, capital (debt and equity) and financing of 94 MW wind farm portfolio (four wind farms) in Europe.♦ Advised a major international concession/development company on positioning for major infrastructure and PPP projects in Europe.♦ Advised Halivourgiki, one of the largest industrial groups in Greece, on the development, strategy and financing of an 880 MW gas fired power station in Greece and their negotiations with partners as co-sponsors.♦ Advised an international road operator (confidential) on their tender for the Alligator Alley Road, Florida.♦ Advised Dragados SPL on its tender for the acquisition of a container port terminal in the Mediterranean Sea.♦ Advised on the successful sale of an ownership interest in a 17.85 MW wind farm under development (fully permitted) in Greece. Assignment included the selection of and negotiations with strategic international investors. Driving • Integrity • Excellence • Character • Independence Values • Commitment • Social responsibility 26

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