Project Financing

As an effective alternative to conventional direct financing, project financing has become one of the hottest topics in corporate finance. It's being used more and more frequently—and more successfully—on a wide variety of high-profile corporate projects, and has long been used to fund large-scale natural resource projects. But the challenges of successful project financing are immense, and the requirements of the process can easily be misunderstood. That's why John Finnerty has returned with the Third Edition of Project Financing.

Drawing on his vast experience in the field, Finnerty takes you through the process step by step. Using updated examples and case studies that illustrate how to apply the analytical techniques described in the book, he covers the rationale for project financing, how to prepare the financial plan, assess the risks, design the financing mix, raise the funds, and much more.

• Includes completely new chapters that cover the financing of sustainable projects as well as Sharia-compliant (Islamic) project financing
• New material has been added to the discussion of financial modeling and international debt financing
• Explores today's most innovative financing techniques and analyzes the shortcomings of unsuccessful project financing attempts

Whether you're a corporate finance professional, project planner, or private investor, Project Financing, Third Edition demystifies the complexities of project financing and provides an invaluable guide for anyone who wants to master innovation in corporate finance today.

Preface xi

Acknowledgments xv

Chapter 1 what is project financing? 1

Chapter 2 The Rationale For Project Financing 13

Chapter 3 what is special about large projects? 33

Chapter 4 who finances large projects? 53

Chapter 5 analyzing project viability 71

Chapter 6 analysis and financing of renewable energy projects 91

Chapter 7 Designing security arrangements 115

Chapter 8 Structuring the project 131

Chapter 9 Preparing the project financing plan 151

Chapter 10 Discounted cash flow analysis 169

Chapter 11 Financial modeling and project evaluation 193

Chapter 12 Using real-options analysis to evaluate a project 215

Chapter 13 Sources of project funds 239

Chapter 14 Managing project risks 271

Chapter 15 Sharia-compliant project financing 305

Chapter 16 Issues for the host government 331

Chapter 17 case study: the indiantown cogeneration project 347

Chapter 18 case study: the tribasa toll road project 379

Chapter 19 case study: the euro disneyland project 399

Chapter 20 case study: the eurotunnel project 431

Chapter 21 conclusion 457

Appendix A comparative terms of selected projects 463

Appendix B other examples of project financings 475

Appendix C legal investment requirements governing new york life insurance companies 489

Notes 495

Bibliography 513

Websites 521

Index 523

JOHN D. FINNERTY, PHD, is Professor of Finance at Fordham University's Graduate School of Business and served as the founding director of the MS in Quantitative Finance Program. He is also Managing Principal of Finnerty Economic Consulting, LLC, which specializes in business valuation, securities valuation, solvency analysis, calculation of damages, and litigation support. Finnerty has testified as an expert in valuation, securities, and other financial matters in federal and state court, and in arbitration and mediation proceedings. His research focuses on corporate finance, including project financing and fixed income securities and derivatives valuation. Finnerty??has published thirteen books, including the first and second editions of Project Financing, and more than one hundred articles and professional papers. He is a former president and director of the Fixed Income Analysts Society, and a former president, director, and chair of the trustees of the Eastern Finance Association. Finnerty is a trustee of the Eastern Finance Association and a Director of the Financial Management Association. He was inducted into the Fixed Income Analysts Society Hall of Fame in 2011.

As the financial environment continues to evolve, so will the field of project financing. In order to keep up with this dynamic discipline, you need the most up-to-date information possible. That's why author John Finnerty has returned with the Third Edition of Project Financing.

While written to reflect current conditions—and address how project financing continues to enjoy a prominent place among the most important financing techniques in the global economy—this reliable resource still remains true to the previous edition's successful approach of making a complex topic understandable. Using updated examples and case studies, including Euro Disneyland, the Eurotunnel Project, and a cogeneration project, that skillfully illustrate how to apply the analytical techniques described in the book, this new edition covers the rationale for project financing, how to prepare the financial plan, assess the risks, design the financing mix, raise the funds, and much more.

Drawing on his vast experience in the field, Finnerty details each step of the process, describing the circumstances in which it is most likely to be advantageous, how to craft contractual arrangements to allocate risks and rewards among interested parties, and how to deal with government, legal, tax, and financial issues. Along the way, Finnerty offers up-to-date insights on everything from how political risks can adversely affect a project and modeling project cash flows to international debt financing.

In addition, this Third Edition contains completely new chapters on Sharia-compliant project financing as well as the analysis and financing of renewable/sustainable projects. Here, you'll gain a firm understanding of how Sharia-compliant financing can be tailored to large projects in Islamic regions of the world and discover the special considerations that come into play with renewable/sustainable project financing.

Easily the most complete, up-to-date explanation of the topic available today, Project Financing, Third Edition blends sound research-based theory with practical hands-on advice to illustrate all of the steps necessary to successfully finance a project in today's competitive business environment.

As the financial environment continues to evolve, so will the field of project financing. In order to keep up with this dynamic discipline, you need the most up-to-date information possible. That's why author John Finnerty has returned with the Third Edition of Project Financing.

While written to reflect current conditions—and address how project financing continues to enjoy a prominent place among the most important financing techniques in the global economy—this reliable resource still remains true to the previous edition's successful approach of making a complex topic understandable. Using updated examples and case studies, including Euro Disneyland, the Eurotunnel Project, and a cogeneration project, that skillfully illustrate how to apply the analytical techniques described in the book, this new edition covers the rationale for project financing, how to prepare the financial plan, assess the risks, design the financing mix, raise the funds, and much more.

Drawing on his vast experience in the field, Finnerty details each step of the process, describing the circumstances in which it is most likely to be advantageous, how to craft contractual arrangements to allocate risks and rewards among interested parties, and how to deal with government, legal, tax, and financial issues. Along the way, Finnerty offers up-to-date insights on everything from how political risks can adversely affect a project and modeling project cash flows to international debt financing.

In addition, this Third Edition contains completely new chapters on Sharia-compliant project financing as well as the analysis and financing of renewable/sustainable projects. Here, you'll gain a firm understanding of how Sharia-compliant financing can be tailored to large projects in Islamic regions of the world and discover the special considerations that come into play with renewable/sustainable project financing.

Easily the most complete, up-to-date explanation of the topic available today, Project Financing, Third Edition blends sound research-based theory with practical hands-on advice to illustrate all of the steps necessary to successfully finance a project in today's competitive business environment.