Future Project Finance Structures By Robert W. Stuart President & Chief Executive Officer InDepth Financial Advisors LLC
Over the past 5 years, bankers have employed a financing technique called “Project Finance” to build most of the world’s long-haul submarine fiberoptic networks. Project Finance is a technique that employs multiple lending rationales in an attempt to reduce the risk inherent in the extension of credit. More specifically, Project Finance will finance
the actual building of the system paying for the procurement, deployment and testing of the network assets themselves. As a result, Project Financing is contractintensive relying heavily upon the risk distribution inherent in the Project Contracts including the Supply Contract and the Wet & Dry Plant Operation & Maintenance Agreements. 15
The financing is completed at the “project level” where the financiers, close to the assets themselves against which they are secured, can look to project (rather than general corporate) cashflow to accomplish debt service over the financing life. The debt facility normally contains an interestonly period where payments are made from additional drawdowns against the availability. This initial stage corresponds with the Project’s Construction Period. On or about Ready for Service (RFS), the facility changes to an amortizing Term Loan Stage where on-going interest payments and repayment of the loan is accomplished by sales of capacity on the system to thirdparties.
Evolution of Project Finance Structures Over this same 5 year period and particularly spurred on by the initial success of Global Crossing, more and more financial institutions entered the Project Finance arena and competed for lucrative leadagency roles. As competition increased, the Terms & Conditions employed became more aggressive as new financial players