Project developers do not normally have expertise in the financial packaging of projects, the services of a ZEUZCORP Financial Advisor in doing this would prove valuable for the developers. Among others, the role of the adviser will include the preparation of a Project Information Memorandum (PIM) which should reflect the due diligence efforts of the developers. The aim of the activity at this stage is to attain a financial close with terms that are agreeable to both the developers and lenders.
a. Project summary
- brief history of the project
- list of major parties involved
- technology used
- energy output
- total costs
b. Overview of financing plan, sources and uses of funds
- description of overall financing plan breakdown of costs (use of funds)
- plant hardware
- construction cost
- development cost
- external fees (lawyer, financial adviser, etc.)
- interest costs during construction
- contingencies source of funds
- planned debt, equity
- other funds such as subordinated debt/grants (list)
c. Term sheet
- loan structure
- amount to be borrowed
- time over which borrowing will occur (draw down period) to fund construction
- loan repayment/interest rate (conservative rate should be used) - key coverage ratios, covenants, default conditions
d. Description of development plan
- development plan/schedule
- environmental issues -construction details
- site attributes
- permits and licenses
- resource availability
- electricity interconnection
- fuel supply
- waste disposal, etc.
e. Description of the principal contracting parties
- relationship of parties involved and roles
- brief financial statement of each party
f. Summary of major project contracts
- normally produced by developer’s legal adviser
- highlights of each major contract
g. Summary of risks
- review of all considered principal risks and description of how these risks have been mitigated
- completion risks (cost overruns, etc.)
- need for experienced operator
- completion bond (from the contractor)
- effect of increase in interest rate
- secure, long
- term market for the project output
- new technology (plants with similar technology operating elsewhere, availability, capacity)
- protection from defects in technology
h. Summary of principal licenses and permits
- list all the permits needed for construction and operation of the project
- status report on each license/permit should be provided indicating those obtained (with conditions) and the expected timing for approval for those yet to be obtained
i. Financing evaluation
- cash flow projections
- how the project will repay debt under different scenarios (changing external and internal factors)
CHECKLIST FOR SUCCESSFUL FINANCING
- The project is sponsored by experienced and reputable developer(s).
- A satisfactory feasibility study and financial plan have been prepared.
- The cost of raw materials to be used in the project is assured.
- Supply of energy at reasonable cost is assured.
- A market exists for the products (electricity, other by-products) or services to be produced.
- Product Flow systems are sufficient (to connect to the grid).
- Adequate infrastructure (roads, water, etc.) is or will be available.
- Experienced and reliable contractor.
- Experienced and reliable operator.
- Management personnel are experienced and reliable.
- Use of proven (well-demonstrated) technology.
- Well-structured agreements (fuel supply, power purchase, etc.)
- Adequate cash flow, acceptable debt service coverage.
- Electricity sales price risks in market are addressed.
- Availability of all permits and licenses.
- Country and sovereign risks are acceptable.
- Currency and foreign exchange risks are addressed.
- Adequate and timely equity contributions by sponsors.
- Project and assets have value as collateral.
- Satisfactory appraisals of resources and assets have been obtained.
- Proof of adequate insurance coverage.
- Force majeure risk is addressed
- Completion and cost over-run risks are addressed.
- Project offers adequate ROE, ROI and ROA for the sponsors and investors.
- Inflation and interest rate projections are realistic and from reliable sources.
- Environmental risks are manageable.
- Proper due diligence on joint venture partners and agreements that makes sense.
- Review report of the independent engineer.