Public-Private Partnership Advanced Modeling with Legal Analysis: Syllabus

Toronto Apr 30-May 1, 2009

Part 1 – PPP for Project Finance

• The concession
  • Matching concession length and life-cycle
• RFP and winning criteria
• Canadian Government Programs
  • Partnerships BC
  • Ontario Infrastructure Projects
  • Alberta’s Ministry of Infrastructure and Transportation
  • Agence des partenariats public-privé du Québec
• Corporate finance is a balance sheet exercise
• PPP is a cash flow exercise
• "Cash is King"
• The Time Value of Money ("TVM")
• "A Dollar Today Is Worth More Than A Dollar Tomorrow"

Part 2 - The Role of the Model & Common Rules

• Reflection of the Project & Financing Documents
• An easily manipulated model to reflect changes in the deal
• A tool to support negotiations
• "Always negotiate off the model and never model off the negotiations"
• Run different cases and scenarios
• Essential model layouts and rules
• Multiple scenario selections by using INDEX and CHOOSE

Part 3 - The Risk Matrix

• What is Risk?
• A statistical perspective
• A level view of risk
• Risk is not pejorative
• What is Reward?
• Does the reward adequately compensate the risk?
• "Beauty is in the Eye of the Beholder"
• How do we approach risk from a modeling standpoint?
• Matching risk mitigation with documents and cash flow

Part 4 - Introduction of a Project for Modeling

• The project structure and the model
• Project Documents are financed, not models
• Appropriately representing document structures in the financial model
• Nominal versus real models
• Real models underestimate real cash taxes

Part 5 - The Project Documents and SPV Structuring

• Design-Build
• Design-Build-Operate
• Design-Build-Finance-Operate
• Design-Build-Finance-Operate-Maintain
• Design-Own-Operate-Transfer

Part 6 - The Assumption Page

Part 7 – Revenue: Availability versus Service and the Unitary Payment

• Milestone payments
• Performance based operating payments
• Tariff structures
  • Availability Payments
  • Service Payments
  • Unitary Payments
• Market Risk
• Capturing consumer surplus
• Taking and/or setting market pricing
• Partially guaranteed revenue streams
• Setting the guaranteed base required revenue

Part 8 – Operations

• Life-cycle costing
• Correctly matching units
• Crossing out appropriate units and tariffs to arrive at cash
• Fixed and variable costs
• Matching cost drivers to revenue drivers
• Escalation factors
• "How many angels are on a pinhead?"
• Operational taxes
• Accurately assigning appropriate taxes
• Matching different currencies and foreign exchange issues with Opex, Capex and Capital

Part 9 – Construction

• Grant payments during construction

Part 10 – Insurance

• Construction insurance
• Operational insurance

Part 11 – Taxes

• Withholding taxes
• 5/25 exemptions
• Income Tax Act
• Leases

Part 12 – Depreciation

• Asset ownership and depreciation issues
• Different modeling techniques
• The "Trapped Cash" dilemma
• Thin-Capitalization issues

Part 13 - Financing(s)

• Bank Loans
• Bonds
  • Convertibility
• Quasi-equity
• Equity
• Matching currencies
  • Purchasing Power Parity
  • Covered Interest Parity
• Security packages
  • Reserve accounts
  • Maintenance accounts
• Model switches and masks

Part 14 - The Income Statement

• Model information flow

Part 15 - The Balance Sheet

• Balance checks

Part 16 - The Statement of Cash Flows

• Waterfall payments
• Distributing capital and funds correctly
• Trapped cash issues

Part 17 - Equity Returns

• Net Present Value (“DSCR”)
• Internal Rate of Return (“IRR”)

Part 18 - Loan Values

• Debt Service Coverage Ratio (“DSCR”)
• Average Loan Life
• Other covenants

Part 19 - “Pricing the Deal” and Scenario Analysis

• Fundamental Macro Analysis
• Review potential risks in the equity model and project documents
  • The equity's view
  • Lenders' view
  • The other participants' views
• Refining role of a risk matrix and reflection in the model

Part 20 - Documenting Changes to the Model

• Negotiating changes
• Due diligence changes
• Sensitivity tables

Part 21 - Analysis of Liquidated Damages (“LD”), Asset Renewal & Lifecycle Reserves

• Construction related damages
  • Time
  • Cost over-runs
  • Outputs and inputs
• Operational related damages

Part 22 – Monte Carlo Simulation using ModelRisk

• Identifying important sensitivities
• Choosing distribution
• Using rank order of sensitivities to negotiate or hedge contracts
• Analyzing outputs
• Using ModelRisk output and graphs for presentation purposes