Project and Infrastructure Finance - Accounting and Finance Assignment Help

Assignment Task

Question 1  

You work for a project finance bank. The following information is available for a toll road project that you are considering for a loan. It is a sample for just one year of what would be a multiyear financial projection schedule. These numbers represent the summary of all parties’ experts on costs and usage of the toll road, and the financing payments that your advisor thinks you should get if you provide the loan as well as the dividends that the sponsors should get for a particular year in the project. For the reserve accounts, a drawdown from the account is indicated by a negative number and a payment into the account is indicated by a positive number. The applicable corporate tax rate is 20%. All numbers provided below are in $ million.

Expected revenue: 200

Operating and maintenance costs: 55

Insurance costs: 5

Capex: 22

Depreciation: 9

Addition to maintenance reserve account: 20

Addition to debt service reserve account: 8

Senior debt interest: 30

Senior debt principal: 45

Dividends: 15

1. Please compute the Cash Flow Available for Debt Service (CADS) and the Debt Service Coverage Ratio (DSCR).

2. Should your bank make the loan? Why / why not?

Question 2

You work for a project finance bank. The following information is available for a solar power project that you are considering for a loan in the amount of 2,000 with 5% annual interest. The loan is to be amortized on an annual principal repayment schedule in four equal installments over the next four years (from t=1 to t=4). Cash available for debt service is expected to be 1,000 next year (t=1); 1,500 in t=2; 1,700 in t=3; and 1,800 in year t=4.

1. Calculate the annual debt service coverage ratio (DSCR) from t=1 to t=4, as well as the loan life coverage ratio (LLCR) at t=0.
2. Suppose that your bank has a policy not to accept loans with an annual DSCR below 2. Please demonstrate whether you can adjust the original financial structure to make the project finance bank you work for more likely to approve the project and funding.

Question 3

Consider the data in the table below. The table compares two alternative ways of financing the same project. In financial structure 1, the project is financed with (senior) bank debt and equity only, while in financial structure 2, the project is financed with equity, (senior) bank debt, and bonds (subordinated debt).

Suppose the project is closed down right at the time of completion. Suppose that no debt has been paid down yet and there is no accrued interest. Consider the following realized asset values when the project is closed down:

1. Realized asset value = 110
2. Realized asset value = 66
3. Realized asset value = 44

For each of the three realized asset values and both financial structures, calculate the payments to shareholders and debt holders (both senior and subordinated, if applicable).

How can the use of subordinated debt be advantageous for a project’s senior lenders in case of default? Base your answer on your calculations.

Part B: Case Analysis

Please analyze the case ”Quezon Power Ltd Co. Project Finance”.

NOTE: BEFORE BEGINNING, assume that the case as described contains all terms of the project financing. Do not assume anything that is not clearly stated. In terms of answers, your answers to Part B must not be longer than two pages of handwritten notes (or, if typed, 1.5 pages of standard sized, not smaller than 11 point, font).

1. Discuss the key risks that Quezon Power is exposed to and the relevant risk mitigates for these risks (that is, the contracts that have been signed with the different counterparties to be used to mitigate these risks). Focus your discussion on the main risk categories and put the main risks under the appropriate heading (e.g., “construction risk”). Your discussion should be concise and to the point.
2. Which risk(s) would a lender be primarily worried about? What is the key unmitigated risk (if any)? Explain your reasoning.

This Accounting And Finance Assignment has been solved by our Accounting And Finance Experts at My Uni Papers. Our Assignment Writing Experts are efficient to provide a fresh solution to this question. We are serving more than 10000+ Students in Australia, UK and US by helping them to score HD in their academics. Our Experts are well trained to follow all marking rubrics & referencing Style. Be it a used or new solution, the quality of the work submitted by our assignment experts remains unhampered.

You may continue to expect the same or even better quality with the used and new assignment solution files respectively. There’s one thing to be noticed that you could choose one between the two and acquire an HD either way. You could choose a new assignment solution file to get yourself an exclusive, plagiarism (with free Turn tin file), expert quality assignment or order an old solution file that was considered worthy of the highest distinction.