ECONOMIC REMUNERATION SYSTEMS,

FINANCING OF RENEWABLE PROJECTS

project finance

Carlos Ruiz Nicolás

[Link]@[Link]
 Index
1. Introduction
2. Non-recourse financing to the shareholder (project finance)
Types of financing for projects
2. Definitions
3. Main characteristics of a Project finance.
4. Advantages and disadvantages of project finance
5. Types of projects that are financed under this modality.
6. Phases of a Project Finance
7. Identification of the parties.
8. Initial study of the project.
9. Risk analysis:
10. Risk analysis; mitigation and allocation.
11. Risk analysis; calculation 'rating'.
12. Economic and Financial Structure: The Base Case.
[Link] and financial structure: Profitability analysis and its main ratios.
14. Construction and modeling of the base case step by step.
15. Conclusions
Balance Sheet from the point of view
of the financing
 TRADITIONAL FINANCING
Capital + Debt
SHAREHOLDERS PROJECT
Interest + Dividends
Principal
+
Debt Interests

FINANCIAL ENTITIES

PROJECT FINANCE
Capital
SHAREHOLDERS PROJECT
Dividends Principal
+
Debt Interests
Contingent guarantees, if applicable

FINANCIAL ENTITIES
4
2 Definitions

What is a Project Finance?

✓
It is a credit instrument that allows for financing.
individually, using the greatest leverage
possible, a specific investment project, given
the capacity, quality, and predictability of generation
funds from this.

✓
It is used to finance investment projects, with
high degree of leverage, without there being
resource (or is limited) to its promoters.
3 Main characteristics of a 'project finance'

It is carried out through a vehicle company, which lacks others.

activities, therefore the assets are identified without possibility of
to be confused with others, and they are out of balance with their promoters
(except for consolidation).

Predictability and stability of cash flows.

High investment needs, with high percentages of

leverage.

The debt that finances the project must be long term,

dimensioning it to the project's flows.
3 Main characteristics of a 'project finance'

Exhaustive risk analysis and contractual mitigation with

complex legal structures

The financing of the project is designed based on the

characteristics of the project itself, that is, investment, capacity of
fund generation, volatility, etc.

There is no recourse to the project promoters, and in the event that

they exist, are limited, and are objectified by the occurrence of certain
events that activate the warranty.

Generally, there is more than one company interested in the project.

which leads to the existence of several promoters, and in many cases
none of them is majority.
4 Ventajas e inconvenientes de un “project finance”

PROMOTERS
Obtaining funds without resorting to the promoter in the long term, or at least
limited resource in amount and/or time.
High leverage, maximizing the promoter's profitability.
Off-balance accounting, without impairment of the structure
financial situation of the partners, despite the impacts at the consolidated level.

Numerous restrictions on promoters (distribution of dividends,

cash-sweep, Escrow account, modificación contratos.
Cost higher than corporate financing
5 Types of projects: Energy, Oil & Gas

Cogeneration Power Plants.

Electric Power Generation Plants from
Biomass.
Wind Farms.
Thermal Solar Plants.
Mini Hydroelectric Plants.
Gas pipelines.
Gas storage.
Others.
5 Types of projects: Infrastructure

Highways (real toll vs shadow toll).

Railways / Trams / Metro.
Hospitals.
Ports / Airports.
Tunnels.
Railway Infrastructure.
Prisons / Courts.
Treatment plants.
Others.
5 Types of projects: Asset Finance

Ships

Planes

Launch of Satellites

Others
5 Types of projects: Real Estate

Hotels.

Office Buildings.

Parks / Shopping Centers

Industrial Warehouses.

Others.
6 Phases of Project Finance

1. Identification of the Parties.

2. Initial Project Study.
3. Risk Analysis.
The Mandate.
5. Design of the Financial Structure.
6. Design of the Legal Structure.
7. Preparation of the Informative Memorandum.
8. Preparation of Financing Contracts.
9. The Union.
6 Phases of project finance: identification of the parties

Fundamental Parts:
1. Project Partners: The Sponsors.
2. The Vehicle Company: Accredited or Borrower.
3. Financial Entities: Creditors or Lenders.
Accessory Parts:
1. Insurance Companies.
2. International Agencies.
3. The Public Administrations.
4. External Advisors:
Legal Advisor.
Technical Advisors.
c) Insurance Advisor
d) Model Auditor
e) Project Monitor
6 Phases of 'project finance': Initial project study

Detection of Business Opportunity.

•Estudio de la Disponibilidad Técnica para Realizar el
Project.
Quantify the Necessary Investment.
Quantify the Cash Flows.
First Approach to the Design of the Structure of
Financing.
Economic Feasibility Analysis of the Project; Service
Debt Versus Free Cash Flows.
Obtaining permits, licenses, etc.
6 Phases of Project Finance: Design of the Financial Structure

Analysis of Investment Needs.

Determination of Operating Cash Flows.
1. Revenue Analysis.
2. Study of Operating Costs and Expenses.
3. Cost of Financial Resources.
Determination of the Financing Structure.
1. RCSD
2. Cash-sweeps
3. Covenants
Dividend Policy.
Study of the Coherence of the Financial Structure.
Consideration of Various Scenarios.
6 Phases of 'project finance': The mandate

Once a first study of the project has been completed and

analizados los principales riesgos que le afectan, la
ad hoc society established, must grant a mandate to
a financial entity to design the structure of
financing and lead the syndication in case this
There is. Typically, the process has 4 steps:

The Financial Entity/Entities makes an indicative offer.

2. The vehicle company accepts the indicative offer and grants the
Mandate to the offering entity/entities.
The Financial Entity/Entities submits to its decision-making bodies the
offer.
A definitive and binding offer is made.
6 Phases of ‘project finance’: Design and legal structure

Construction Contracts.
Contracts with Public Administrations.
1. Licenses and Concessions.
Additional Commitments.
3. Sales Contracts.
Supply Contract.
Operation and Maintenance Contract.
Insurance Contracts.
Product or Service Sales Contracts.
Financing Contracts
6 Phases of 'project finance': Financing contracts

Although in some cases there is only one contract

of financing, which corresponds to the contract of
loan, in most cases there is more than
one, or at least that one includes several modalities
(Credit / Loan).

a) Senior Debt Contract (main loan).

b) VAT Debt Contract.
c) Construction Financing Agreement.
d) Working Capital Financing Agreement.
e) Subordinated Debt Contract.
f) Coverage Contracts
6 Phases of 'project finance': The syndication

Syndication Models: Club deal, phased, open...

Preparation of Infomemo
It contains basic information about the project.
•Base para toma decisión entidad invitada.
Prepared by leader bank and promoters.
The invitation.
Confidentiality letter.
Suggestions and questions.
Syndication closing (deadline).
Prorating.
Analysis of the documentation.
Company.
6 Phases of 'project finance': Risk analysis

Legal Operation
Administrative
Construction

Sale
Technological
SPV

Social
Environmental Design

Supply
Country/ Financial
Production
Political
6 Phases of Project Finance: Risk Analysis, Administrative Risk

Construction Pre-Assignment Registration

Administrative Authorization Park
Administrative Authorization Line
DIA Park
Evacuation Line
DIA Substation
Urban Planning
Project approval
Urban licenses
Construction and activity licenses
Water Concession

Exploitation Launch Act of the Park

Final registration in the RAIPRE
Licenses, Authorization and Municipal Permits.
Waste Manager Licenses
State Liability
6 Phases of 'project finance': Risk analysis, legal risk

Contracts Turnkey Construction

Construction of Electrical Infrastructures
Use Electrical Infrastructures
Operation and Maintenance
Purchase or Use of the Lands
Management and Administration
Transport Network Access Technician and/or
Distribution.
Electricity Sale Contracts
Supply Contracts
Concession Contracts

Partner Agreements •Contratos Deuda Subordinada Socios

Social Agreements
Capital Increases
6 Phases of project finance: Risk analysis, construction risk

Construction Turnkey

Transfer
del
Compensations Risk
Penalties a
Third parties (EPC)

Operation and Linked to

Maintenance Production
6 Phases of 'project finance': Risk analysis, construction risk

During the construction of a project, it can

numerous risks that affect viability are detected
of the project, the funder must ensure that the
the work is being built within the scheduled timeframe, for the amount
budgeted and under the technical and utility conditions
defined.

The main risks in this phase are the following:

a) Problems with the technical design of the project.

b) Delays in the completion of the work.
c) Costs higher than expected.
d) Insufficient infrastructure for the completion of the work.
e) Problems with permits and licenses
6 Phases of project finance: Risk analysis, construction risk

The economic damages should be properly assessed.

what the described risks imply, and analyze who is
is transferring that risk, therefore, these must
to have "sufficient" capacity to assume the risk that
transfers to them, that is, their technical and financial solvency
it must be 'undoubted' to meet the payments that they
it would result in a breach of the turnkey contract,
or its variants.

Determination of the risks that may occur and their

probability of occurrence is determined with the due
diligence of the Technical Advisor and Legal Advisor.
6 Phases of Project Finance: Risk Analysis, Construction Risk

Object •Knowledge location.

Technical Advisor verifies the entirety of the work
project.
Modifications subject to agreement between the parties, Technical Advisor
and Banks

Licenses Legal Advisor verifies compliance according to the project.

Project license responsibility.
Supply license responsibility.
Responsibility for the Startup Report

Deadline Execution period and extensions according to authorizations.

Penalties for delay.
Maximum allowed term vs credit default
6 Phases of project finance: Risk analysis, construction risk

Reception CAP without reservations that affect the correct and continuous
functioning of the project.
Extensive trial periods.
Express acceptance of CAP.

Guarantees Availability Guarantee

Guarantee of spare parts availability.
Power curve guarantee
Material warranty
•Garantía de Producción

Penalties Due to delay.

For availability.
Individual Limits vs Global Limit
Compensations.
6 Phases of project finance: Risk analysis, construction risk

Payment Based on the progress of the work

Verified by independent Technical Consultancy
Advance payment vs Guarantee
% Company of the Cap

Resolution
Penalty limits
Serious breach by contractor
Refund of amounts paid

Force Majeure Responsibility of the parties

Insurance Contractor until provisional reception, Advisor

Insurance checks RC, Construction and assembly risk,
transport
6 Phases of 'project finance': Risk analysis, technological and design

Construction Experience Contractor/Subcontractors

Foundation design/soil study
Civil Works Valuation
•Track-Record main plant components and
suppliers
Other plant experience
Park/Plant Configuration
Electrical infrastructures

Exploitation Power Curve Validation

Availability Calculation
Energy Performance
Storage deposits
Influence of atmospheric conditions
Functionality test
Noise Level
6 Phases of 'project finance': Risk analysis, operational risk

Operation Contract Term

Preventive Maintenance vs Corrective Maintenance
Consumables and major parts
Cost assessment and indexation increases.
Availability guarantees
Penalties
Maintenance Experience
Own staff
6 Phases of 'project finance': Risk analysis, production risk

Production Wind and/or Solar Resource Audit

Evacuation Limitation
Measurement period
Height extrapolations and with stations
meteorológicas
Electric losses and self-consumption
Availability
Power curve
Calculation of p50, p90, and p99
Gas consumption in thermosolar plants
6 Stages of "project finance": Risk analysis, supply risk

OBJECTIVE Ensure the supply

Supply Contracts necessary at a price
stable

Supply Supply Deadline

Supplier Capacity
Substitute supply capacity
Penalties for non-supply
Supply cost
Alternative uses of supply
6 Phases of 'project finance': Risk analysis, sales risk, and financial risk

Sale Legal Framework

Regulated Tariff vs Market Tariff
Hybridization
Gas consumption
Sales Price Indexing.
Take or Pay Contracts
Buyer Solvency

Guarantee the sale

Sales Contract OBJECTIVE
from production to
a stable price
6 Phases of 'project finance': Risk analysis, sales risk, and financial risk

Sale Legal Framework

Regulated Rate vs Market Rate
Hybridization
Gas consumption
Sales Price Indexing.
Take or Pay Contracts
Buyer Solvency

Guarantee the sale

Sales Contract OBJECTIVE
from production to
a stable price
 Index
1. Introduction
2. Non-recourse financing to the shareholder (project finance)
Types of financing for projects
2. Definitions
3. Main characteristics of a Project finance.
4. Advantages and disadvantages of project finance
5. Types of projects that are financed under this modality.
6. Phases of a Project Finance
7. Identification of the parties.
8. Initial study of the project.
9. Risk analysis:
10. Risk analysis; mitigation and allocation.
11. Risk analysis; calculation 'rating'.
12. Economic and Financial Structure: The Base Case.
[Link] and financial structure: Profitability analysis and its main ratios.
14. Construction and modeling of the base case step by step.
15. Conclusions
6 Phases of 'project finance': Risk analysis, mitigation, and allocation

This process is essential for proper financing and its

The result will derive the entire contractual structure.

Risk Coverage
Legal Due diligence Legal
Tariff Guarantee by the Partners.
Litigation Guarantee granted by the Partners
Wide Construction Deadlines
Administrative Due diligence Legal
Administrative Termination Guarantee granted by
parte de los Socios.
Broad construction deadlines.
Country Country Risk Policies (Insurance Advisor)
6 Phases of 'project finance': Risk analysis, mitigation, and allocation

Risk Coverage
Construction EPC contract.
Mechanical Termination Warranty.
Overcost Guarantee.
Technical Due Diligence.
Supplier Quality
Contractor Penalties (delays)
Technical and Design •Technical Due Diligence.
Proven technology/equipment certification.
Guarantee Bonds
Testing Period
Operation Life Financing Contract.
Increments years 5, 10, 15
RCSD relaxed
Sensitivity Analysis
6 Phases of project finance: Risk analysis, mitigation, and allocation

Risk Coverage
Sale Established Legal Framework.
Financing Term vs Project Useful Life
Cash-sweep clauses.
RCSD wide
Supplier Quality
Contractor Penalties (delays)
FRSD
Production Resource Audit
Supply Sensitivity Analysis
FRSD
•RCSD wide
Circulating Lines
Contractor Production Guarantee
Supply Guarantees
6 Phases of project finance: Risk analysis, mitigation, and allocation

Risk Coverage
Financial Coverage via swap
Interest rate covers
Cash-sweep clauses.
RCSD wide
•FRSD
Limitation on Dividend Distribution
Extraordinary Insurance Advisor
6 Phases of 'project finance': Risk analysis, construction risk

Economic damages must be correctly assessed.

what the described risks imply, and analyze who
is transferring that risk, therefore, these must
to have "sufficient" capacity to assume the risk that
transfers it, that is to say its technical and financial solvency
it must be "undoubtedly" to face the payments that they
would cause a breach of the turnkey contract,
or its variants.

Determination of the risks that may arise and their

The probability of occurrence is determined by the due.
diligence of the Technical Advisor and Legal Advisor.
6 Phases of 'project finance': Risk analysis, construction risk

Object Knowledge of the location.

Technical Advisor verifies the completeness of the work
project.
Modifications subject to agreement between the parties, Technical Advisor
and Banks

Licenses Legal advisor verifies compliance according to the project.

Project license responsibility.
Supply license responsibility.
•Responsibility of the Startup Act

Deadline Execution deadline and extensions according to authorizations.

Late penalties.
Maximum allowed term vs credit default
6 Phases of 'project finance': Risk analysis, construction risk

Reception CAP without reservations that affect the correct and continuous
functioning of the project.
Extensive trial periods.
Express acceptance of CAP.

Guarantees Availability Guarantee

Warranty of availability of spare parts.
Power curve guarantee
Material warranty
Production Guarantee

Penalties Due to delay.

For availability.
Individual Limits vs Global Limit
Compensations.
6 Phases of 'project finance': Risk analysis, construction risk

Payment Based on work progress

Verified by independent Technical Consulting
Advance payment vs Guarantee
% Firm of the Cap

Resolution
Limit penalties
Serious noncompliance contractor
Refund of amounts paid

Force Majeure Responsibility of the parties

Insurance •Contractor until provisional reception, Advisor

Insurance verifies RC, Construction and assembly risk,
transport
6 Phases of 'project finance': Risk analysis, technological and design

Construction •Experience Contractor/Subcontractors

Foundation Design/Geotechnical Study
Civil Works Valuation
•Track-Record main components plants and
suppliers
Other plants experience
Park/Plant Configuration
Electrical infrastructures

Exploitation Power Curve Validation

Availability Calculation
Energy Performance
Storage deposits
Influence of atmospheric conditions
Test function
Noise Level
6 Phases of project finance: Risk analysis, operational risk

Operation Contract Term

Preventive Maintenance vs Corrective Maintenance
Consumables and major spare parts
Evaluation of costs and indexing increases.
Availability guarantees
Penalties
Maintenance Experience
Own personal
6 Phases of 'project finance': Risk analysis, production risk

Production Wind and/or Solar Resource Audit

Evacuation Limitation
Measurement period
Extrapolations in height and with stations
meteorological
Electric losses and self-consumption
Availability
Power curve
Calculation of p50, p90, and p99
Gas consumption in thermosolar plants
6 Phases of 'project finance': Risk analysis, supply risk

OBJECTIVE Ensure the supply

Supply Contracts necessary at a price
stable

Supply Supply Deadline

Supplier Capacity
Substitute supply capacity
Penalties for non-supply
Supply cost
Alternative uses of supply
6 Phases of 'project finance': Risk analysis, sales risk, and financial risk

Sale Legal Framework

•Tarifa Regulada vs Tarifa Mercado
Hybridization
Gas consumption
Sales Price Indexing.
Take or Pay Contracts
Buyer Solvency

Guarantee the sale

Sales Contract OBJECTIVE
from production to
a stable price
6 Phases of 'project finance': Risk analysis, extraordinary risks, and Country

Extraordinary Contractor Insurance

Operation and Maintenance Insurance
Damage Insurance
Loss of Earnings
Insurance Cost

Financial Interest rate increase

Currency risk (supply cost, sale, debt)
Current Needs

Country Change Legal Framework

Public Administration Participation
Subsidies
6 Phases of 'project finance': Risk analysis, mitigation, and allocation

This process is essential for proper financing and its

the result will derive the entire contractual structure.

Risk Coverage
Legal Due diligence Legal
Tariff Guarantee for Partners.
Litigation guarantee granted by the Partners
Wide Construction Deadlines
Administrativo Due diligence Legal
Administrative Termination Guarantee granted by
part of the Partners.
Broad construction deadlines.
Country Country Risk Policies (Insurance Advisor)
6 Stages of 'project finance': Risk analysis, mitigation, and allocation

Risk Coverage
Construction EPC Contract.
Mechanical Termination Guarantee.
Surcharge Guarantee.
Technical Due Diligence.
Supplier Quality
Contractor Penalties (delays)
Technology and Design •Technical Due Diligence.
Proven technology/equipment certification.
Guarantee Bonds
Testing Period
Operation Financing Life Contract.
Increments years 5, 10, 15
RCSD loose
•Análisis de Sensibilidad
6 Phases of 'project finance': Risk analysis, mitigation, and allocation

Risk Coverage
Sale Established Legal Framework.
Financing Term vs Project Useful Life
Cash-sweep clauses.
RCSD wide
Supplier Quality
Contractor Penalties (delays)
FRSD
Production Resource Audit
Supply Sensitivity Analysis
FRSD
RCSD wide
Circulating Lines
Contractor Production Guarantee
Supply Guarantees
6 Phases of 'project finance': Risk analysis, mitigation and allocation

Risk Coverage
Financial Coverage via swap
Interest rate coverages
Cash-sweep clauses.
RCSD wide
FRSD
Limit on Dividend Distribution
Extraordinary Insurance Advisor
6 Phases of 'project finance': Risk analysis, rating calculation
6 Phases of 'project finance': Risk analysis, rating calculation
7 Economic and Financial Structure: The Base Case
8 Economic and financial structure: The Base Case

NEGATIVE CASH FLOWS: APPLICATION OF FUNDS

1 Construction
2 Advisors
3 Intercalary Interests
INITIAL INVESTMENT
4 Stocks (CAPEX)
5 Incorporation Expenses
6 Other Investments (licenses)
8 Economic and Financial Structure: The Base Case

NEGATIVE CASH FLOWS: SOURCE OF FUNDS

1 Capital
2 Shareholder Loans
3 Subordinated Debt
INITIAL INVESTMENT
4 Current Credits (CAPEX)
5 Senior Debt
6 Other Origins
8 Economic and Financial Structure: The Base Case

NEGATIVE CASH FLOWS: SOURCE OF FUNDS

An alignment must be made between the project's profitability and its cost.
financing, which increases with leverage.

The project's ability to generate funds must be combined with

debt structure, in such a way that there is a certain safety cushion
to avoid falling into default situations.

The contribution of own resources by the promoters is viewed by the

financial entities as a demonstration of commitment to the project.

Proper risk management will allow for leverage levels.

higher at a reasonable cost, which maximizes profitability for
all investors, shareholders, and financial entities.

The project must generate funds, even in unfavorable circumstances, for

to face the debt service.
8 Economic and financial structure: The Basic Case

NEGATIVE CASH FLOWS: SOURCE OF FUNDS

Own Resources:
There is no perfect percentage of contribution of own resources,
each project must be studied individually, not
however, in most cases the percentage of capital
initial varies between 15 and 35%.

Leverage:
It refers to the percentage of funds with costs that are
provided by third parties, primarily financial entities,
although other forms of financing should also be included, such as
such as obligations, ICO loans, CESDE, etc.
8 Economic and financial structure: The Base Case

MAIN HYPOTHESIS ESTABLISHMENT: SENSIBILITIES

•SELECTION OF PARAMETERS TO SENSITIZE:

Sales volume
Production capacity.
Selling price.
Operating expenses.
Supply
Personal
Other expenses
Balance hypothesis

Why a certain sensitivity?

In choosing the parameter to be sensitized, we should be guided by the
common sense directing us towards those risks whose coverage
be more deficient.
8 Economic and Financial Structure: The Base Case

SETTING MAIN HYPOTHESES: INCOME SENSITIVITIES

Selling price
Sales contracts and credit quality of the purchaser.

Production
Supply contracts, industrial capacity, availability
technique, etc. Study of counterparties and their credit quality,
as well as from the market.

Units sold
Sales contracts and credit quality of the buyer

Extraordinary Income
–Grants, sale of fixed assets, etc. DO NOT CONSIDER
SAVING VERY JUSTIFIED EXCEPTIONS.
8 Economic and Financial Structure: The Baseline Case

SETTING MAIN HYPOTHESES: SPENDING SENSITIVITIES

Supply or provisioning.
Contracts, terms and timeframe
Availability of raw materials and price volatility.
Substitute Products: Study.
Coverage and guarantees.

Personnel Expenses.
Flexibility in hiring.
Market evolution.
Availability of the workforce
Substitution capacity.
8 Economic and Financial Structure: The Base Case

FIXATION MAIN HYPOTHESES: EXPENSE SENSITIVITIES

Other Operating Expenses

Volume of them
Study of its composition
-Analysis of volatility
8 Economic and Financial Structure: The Base Case

MAIN HYPOTHESIS FIXATION: AMORTIZATION CRITERIA

Deadline Fiscal Impact

-Class Impact on Cash Flow
Incidence Impact on Results
8 Economic and Financial Structure: The Base Case

SETTING MAIN HYPOTHESES: CIRCULATING NEEDS

ACTIVE PASSIVE

Stock rotation Circulating lines

Collection term Payment term to suppliers
Cash needs Other short-term creditors
Debtors
8 Economic and Financial Structure: The Base Case

MAIN HYPOTHESES SETTING: SENSIBILITIES

INVESTMENTS / DIVESTMENTS
Initials: Study of contracts and volatility
During the life of the project:
Useful life of fixed assets
Maintenance investments

CIRCULATING
Collection Period: Consideration of the extremes.
Payment Deadline: The shortest
8 Economic and Financial Structure: The Base Case

FIXATION MAIN HYPOTHESES: NEW INVESTMENTS

Investments Established in the Law.

Maintenance Investments.
Capacity Expansion Investments.
Extraordinary Investments.
8 Economic and financial structure: The Base Case

MAIN HYPOTHESES FIXATION: INTEREST RATE

8 Economic and Financial Structure: The Base Case

FIXATION MAIN HYPOTHESES: SOCIAL DISTRIBUTIONS

Restrictions on dividend distribution

1.- FRSD
2.- Cash-Sweep
3.- RCSD
4.- Debt / Equity
5.- Subordinated Debt Repayment
6.- Importe Máximo
8 Economic and Financial Structure: The Base Case

MAIN CONCEPTS: FREE CASH FLOW

Funds generated by the project to meet interest payments

and principal of the Debt that finances the Project

Gross operating income in that period;

Operating expenses incurred during that period, (operation and
maintenance, management, taxes, leases, fees, personnel
Insurance premiums and others;
Corporate Tax corresponding to that period;
+/- Variation of Working Capital Needs;
Investments to be made;
Financial income.

In order to calculate the variation in Working Capital Requirements (WCR), it

it will proceed as follows:
Variation in the NCT = NCT year n-1 - NCT year n
Being: NCT = + Debtors - Non-Bank Short-Term Creditors.
8 Economic and Financial Structure: The Base Case

MAIN CONCEPTS: FREE CASH FLOW

Free Cash Flow before Debt Service:

They are the funds generated by the project that will be used to address
the payment of principal and interest during a certain period. In
Project Finance must always exceed that payment, as in
these structures do not usually allow for indebtedness
additional.

Free Cash Flow After Debt Service:

They are the funds that the project generates to compensate for the
shareholders and shorten the average duration of financing. With these
funds are allocated to the so-called Reserve Fund (amount
unavailable that is only used for payment of interest and principal of
senior debt), compliance with the cash sweep clauses is addressed and
dividends are paid when they are allowed.
8 Economic and Financial Structure: The Base Case

MAIN CONCEPTS: DEBT SERVICE

The Debt Service Coverage Ratio (DSCR):

Free cash flow before debt service (principal and interest of the
debt with cost), divided by this, must be greater than one. In lines
It is generally accepted that this ratio should be between 1.20 and 1.40.
the base case, which implies a safety margin of 20 to 40% for
face unforeseen events.

Loan Life Coverage Ratio (LLCR): Net present value of free cash flow
before debt service until the debt matures
discounted at the debt rate, divided by outstanding principal of
debt

•Project Life Coverage Ratio (PLCR): Net present value of free cash flow
before the project debt service discounted at the debt rate,
divided by principal debt due.

Cola: It is the period of time between the maturity of the debt and the useful life.
of the project.
8 Economic and financial structure: profitability analysis
8 Economic and financial structure: profitability analysis

Net Present Value

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