Schuster

Structured and Project Finance: 

Structured and Project Finance Lessons for African Projects Name of Conference September 30, 2004

Overview: Structured & Project Finance: 

Overview: Structured & Project Finance Introduction: Overview of Ex-Im Bank Structured Finance Products History and Activity Project v. Structured Finance: Distinctions Deal Appropriateness

Products – What We Do: 

Products – What We Do Comprehensive guarantee Direct Loan Political risk only guarantee Role is as Senior Lender Participation limited by U.S. content

History: Where We’ve Been: 

History: Where We’ve Been

Activity: What We’ve Done: 

Activity: What We’ve Done Structured finance has been dominating our portfolio.

Authorizations By Sector, Project and Structured Finance, 1995-2004 ($MM): 

Authorizations By Sector, Project and Structured Finance, 1995-2004 ($MM) Together, power & oil/gas deals comprise 80% of our authorizations.

Authorizations By Sector, Project and Structured Finance, 1995-2004 ($MM): 

Authorizations By Sector, Project and Structured Finance, 1995-2004 ($MM) Latin America and Asia comprise over ¾ of deals, Africa only 6%

Structured & Project Finance: What is the Difference?: 

Structured & Project Finance: What is the Difference? Structured (Typical) Full recourse to sponsor Expansion of operation in existence for 3+years Analysis of historic & projected cash flows Limited “perfection of security” Project Finance Limited recourse Greenfield or project expansion Analyze project’s future cash flows Complex documentation to perfect security

Terms: Project v. Structured Finance: 

Terms: Project v. Structured Finance Structured Finance Pay interest during construction (IDC) Maximum Repayment Term 10 years/12 years power Equal semi-annual principal 1st principal 6 months post-completion Finance for: local costs connected to export contract, ancillary fees Project Finance Capitalize IDC Repayment up to 14 years Flexible amortization Grace periods available Local costs 15% of contract value, special ancillary services

Deal Appropriateness-Structured v. Project Finance: 

Deal Appropriateness-Structured v. Project Finance The Trade-off What Not to Do Issues Structure and Core Principles Co-finance Example

Project Finance: Trade-off: 

Project Finance: Trade-off Whether to use project finance is often a trade-off between: Balance Sheet Considerations Advisory & Legal Expenses Time to close & fund and

Other Considerations: 

Other Considerations For Project Finance: Expertise For Structured Finance: Existing credit source For either: Existence of more than an idea and a site

What Not to Do: 

What Not to Do Don’t: Use project finance due to lack of supporting balance sheet strength. Assume “micro project finance” takes as long as big deals – it takes more! Use structured finance to get lower credit standards.

Slide14: 

Project Finance: Structure Host Government Essential structure can appear simple, but shows that a contract must support every relationship.

Core Concepts of Project Finance: 

Core Concepts of Project Finance Reasonable Assurance of Repayment Equity at Risk Long-term investors “Real” cash equity investments Proper incentives Sound Regulatory & Legal Framework Non-interference & lenders’ rights Government support Clear regulation and transparent, enforceable contracts

Structured Finance: Structure : 

Structured Finance: Structure Degree of structuring can vary Elements tend to include: Reserve & other accounts Payment priorities & cash control Funding tied to milestones Dividend release conditions

Example Structure Finance: Off-shore Trust: 

Example Structure Finance: Off-shore Trust “Externalize” risk by: Placing secure revenues off-shore In a trust for the lenders Project Company Product Off-Shore Buyer $ Off-shore Trust $ $ $ 1. Operations & Maintenance Expenses 2. Lender Debt Payments 3. Dividends

Structure Finance Core Principles: 

Structure Finance Core Principles Same as for project finance: Reasonable Assurance of Repayment Equity at risk Sound Regulatory & Legal Framework Structured finance can save money & time, but not at the expense of credit principles.

Co-Finance: 

Co-Finance Reinsurance of lead ECA by follower Used mostly for straight-forward credits Not suited for project finance Too complex for “passive” following Little cost savings Use in structured finance being considered.

Examples: Project Finance in Africa: 

Examples: Project Finance in Africa

Examples: Project Finance in Africa: 

Examples: Project Finance in Africa

Conclusions: 

Conclusions Structured finance increasingly an option, especially for small deals African activity has been less than hoped Project finance requires equity support & expertise Structured finance can save time & money but not at expense of credit Ex-Im Bank committed to being flexible in finding deal-specific approaches