We recognize the unique challenges of funding project finance structures and the necessity of meeting both the borrower’s need for flexibility and the lender’s need for security. Project finance is by its nature, non-recourse, making the operating integrity of the project and its legal security features of paramount importance.
We have in-depth experience with funding a wide range of project types. The predominant structure for these project financings is a bankruptcy remote special purpose entity (“SPE”) which meets credit rating agency “Project Finance” standards to provide certain protections to bondholders, including an independent member.
The SPE is designed to own and operate a single project, the SPE is protected from financial stress of the owner, there are strict thresholds limiting distributions to the owner and SPE bondholders have no recourse to the SPE owner. Our professionals have experience structuring SPE’s for municipal clients, corporate clients and private companies with “private activity exemptions” utilizing municipal conduit bond issuers to access the tax-exempt bond market.
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Our professionals have extensive experience with projects financed with SPE structures ranging from electric power generation, air cargo, landfill gas, natural gas supply and desalination-related projects. Bond issues for these projects have been rated in the “A” and “BBB” categories and some have been non-rated. Our professionals also have experience with utility tariff securitization bonds which utilize an SPE-type structure, are implemented through a regulated utility and accomplish “AAA” ratings.
Here are some of the benefits and service elements you’ll receive:
Security Provisions – Because the SPE secures repayment of its bonds solely from project revenues, the SPE is not able to offer a rate covenant as revenues are a function of off-take agreements with fixed or market-based prices. Security provisions must be crafted that recognize market price and project volume risks and find a balance between holding operating cashflow inside the SPE and making distributions to the owner.
Debt Capacity Modeling – Our professionals leverage their real-world experience and market knowledge and work with the Quantitative Group to model the unique revenue and expense dynamics of project finance structures. Project-specific models are developed to show both “steady state” and to run “stress tests” on project cashflows. The models are the basis for rating agency and investor discussions and impact debt service coverage thresholds required for the project to make distributions to owners.
Capital Market Participation – Due to our direct and on-going participation in the debt capital markets (both taxable and tax-exempt), we are able to provide real-time market sensitivity to the credit quality spreads that impact the debt of project financing more than other sectors.
Investor Presentations – We use our industry knowledge to develop comprehensive and effective investor presentations and due diligence meetings (in the case of non-rated bond issues).
In-House Expertise – The Firms’s in-house corporate finance, commodities and capital markets expertise is readily available to the project finance team.
To learn more about our expertise in project finance, contact us at publicfinance@hilltopsecurities.com.
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