Leads to high transaction costs and a lengthy transaction process.The allows more confidence and a high level of debt (e.g.
what happens if construction takes longer than planned? Who will buy the product?) A lot of scrutiny to quantify and allocate risk (e.g.This requires a well developed risk sharing mechanism to get creditors (especially lenders) on board. Since lenders believe that their loan principal will be repaid solely from the cashflows generated by the project, as opposed to the values of the assets, their focus centers on mitigating all risks around those cashflows. Enroll Today Why project finance is not well suited for small projects Learn project finance modeling, debt sizing mechanics, running upside/downside cases and more. Step-by-Step Online Course The Ultimate Project Finance Modeling PackageĮverything you need to build and interpret project finance models for a transaction. Typically any scrap value is offset by the cost of removal and rehabilitation of the land.Īnd therefore, terminal value is not a factor. There are really no assets to speak of at the end of the project life. Or the lease of the land expires, and the entity needs to decommission the wind farm. It may be that the technology is rated for a 25-30 year lifespan. Therefore, it’s critical that the cashflows during that 30 year concession can repay the loan principal and interest, AND adequately compensate the entity.Īlternatively, consider a wind farm which a private entity develops and operates. There are no further cashflows to the private entity beyond that. At the concession end, the government takes over the toll road. This is partly due to the long term nature of the assets, and the size of the assets – the market just isn’t that liquid for an operator of a $1B toll road.Ĭonsider a toll-road concession, where the government grants the rights for 30 years to a private entity for operating the toll road. The second distinction is that there is very often no “ terminal value” in project finance – no sale at the end of the project lifespan which results in an influx in cash to pay creditors (e.g. Project Finance is Non-Recourse, meaning the amount and risk of debt financing is determined solely by the cash flows the project can generate.
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