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IMPLEMENTING PARTNERSHIPS IN CALIFORNIA
Sacramento
Adam Nicolopoulos, Managing Director
January 20, 2011
Who are we?
1
Project advisory
&
Financial consultancy practice
Energy & Infrastructure
Transport Renewables Ports Power
What we do…
2
Advisory
Structuring
Negotiations
Fundraising
Construction
3
(800)
(600)
(400)
(200)
0
200
400
600
800
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
Mill
ions o
f U
S$ n
om
inal
Opex Capex
Senior debt interest & fees Senior debt repayment
Dividends Tax
Equity subscribed Debt drawdown
Total Revenues
What do the cash flows look like?
4
What if?
(800)
(600)
(400)
(200)
0
200
400
600
800
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 concessionMillio
ns o
f E
uro
s n
om
inal
Opex Capex
Senior debt interest & fees Senior debt repayment
Dividends Tax
Equity subscribed Debt drawdown
Total Revenues
In structuring a project financing, sponsors optimize their capital structure and:– Take lifecycle approach to costs
– Offer BEST VALUE for MONEY
– Maximize leverage / optimize capital structure
– Continuously review and monitor project’s performance
Funders simply want to ensure repayment of their debt
Project Revenues < Annual Costs
5
Hybrid revenue mechanism alternative
– farebox & availability payment
Hybrid Revenue Mechanism Financial Equilibrium
Opex
Debt service
Equity return ?
DSR
replenishment
+
Financial
contribution1
Liquidity
debt service
reserve (DSR)
Intra-year
cash flow shortfall is
covered by the DSR
=
+
+
+
Forecasted
FAREBOX/
USER revenue
(1) operating cashflow
shortfall & “make-
whole”
Property-
retail
revenues
+
Hybrid Revenue Structures – Live project
Costs Revenues
6
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
100,000
2006 2009 2012 2015 2018 2021 2024 2027
(€000's
)
Financial cont ribut ion Ucka tunnel revenues
Mirna bridge revenues Other income
FC revenue adjustment O&M, LCC and tax
Debt service + O&M, LCC and tax
Project X - Case Study: The goal is to eliminate the Subsidy
Blue line – O&M + Debt + RoE + tax
Solid Blue – subsidy
Green + Gold – user revenues
7
Government Financial Support Options
Government grant
Government funding
as loan
Revenue Subsidy – “make
whole”
Minimum revenue
guarantees
Financial guarantees
• No risk sharing
• Depends on performance
by operator & manager
• Uncertainty (level of
exposure)
• Unfavorable risk transfer?
• Requires complex
arrangements and risk
transfer
: Issues :
8
Financial & Commercial Innovation via Optimal Alignment of Risks
Public Private Shared Structural/Comments
Design Depends
Joint effort / timing of design – life cycle approach
Construction No
Construction cost overruns and completion delays
Operation No
Penalties against substandard performance & operational disruption
Maintenance No
Maintenance reserve / equity returns post-funding of maintenance service
Land No
Public sector’s (DOT’s) job
Permits Yes
Construction permits are the responsibility of the Contractor
Revenue/ Traffic
? Key risk -
Varies
Key finance driver / project viability / thorough analysis of traffic and revenue risk
Finance ? Varies
Capital structure / ability to access large parcels of finance on competitive terms
Regulation No Asset Regulation (RAB versus other forms)
Key
Key
Key
Key
Key
Project management & timetable (indicative)
Project
structure and
Government
support
Prepare
tender
documents
Call for
tenders and
proposals
submission
Select
preferred
bidder
Cash flow
analysis
2–3 months 2 months 3 months 4 months 3 monthsProposed
timeframe
Tasks Evaluate
specific project assumptions
Analyse impact on financing
quantitative risk analysis
Capital structure
Analyse potential project structures
Select options for public support
Perform market soundings
Risk analysis
Finalise project structure
Formulate bid strategy
Co-ordinate technical and legal advisors
Data room
Issue invitationto tender
Strategy to ensure best firms submit bids
Address any last minute bidder concerns
Pre-qualify bidders
Implement public relations plan
Evaluate bids from financial impact and credibility perspective
Propose preferred bidder that best satisfies client’s objectives
Throughout
remaining
stages
Develop marketing strategy
Contact private sector candidates
Prepare marketing documents
Canvass
Private
Sector
interest &
marketing
Project
stages
Project advisory
10
Project phases / risk stages
Phases P
roje
ct’s p
erf
orm
an
ce
Development &
conceptConstruction Operation
Years / term of operation
Ramp-up
l
ll
Risk to investor
Equity [20%]
Debt [80%]
Original
financing
Refinancing
l
2100337L
Risk free rate (treasuries)
+
Construction risk
+
Revenue model
+
Operation risk
+
[Seniority]
+
Ownership premium
Risk free rate (treasuries)
+
Project risk premium
+
Swap rate
+
[Premium]
...so how much do I pay for capital?
EQUITY:
Shareholders/financial investors
DEBT:
Lenders / debt capital markets
Expected IRR Margins
So what will make these projects successful?
12
Project Benefits
Project Costs Viable
Purpose
Affordable
L/M-Risks
Returns
13
Ten key criteria for successful PPPs
Size
Timing
Environmental
Financing
Management
Legal
Technical
Land
Viability
Definition -
Discrete
Success
criteria
for a
project
What have I learned along the way?
14
Sound structures (no or little financial engineering)
Experienced advisors
Clear tender process
Price risks properly
Stay close to the market
“Win-Win”
Value time (more important than cash)
Manage timetable
Principle of “financial equilibrium”
Principle of sustainability
15
“Change is the law of life. And those who look only to the past or
present are certain to miss the future” JOHN F. KENNEDY
Phone:
Mobile:
Fax:
E-mail:
+1 415-785-4613
+1 415-246-1765
+1 415-532-2873
AddressSuite 7
810 College Avenue,
Kentfield
California, 94904
Adam Nicolopoulos
Managing Director, ADN Capital Ventures, Inc.
www.adncapitalventures.com
What have I learned along the way?
