The Acterra Group understands the pressures developers and entrepreneurs live with in attempting to obtain the necessary capital to build and operate their projects.  We apply project finance techniques to finance the acquisition or ownership of assets. Structures are customized to the specific asset or assets in question.

Project finance is finance for a particular project, such as a mine, toll road, railway, pipeline, power station, ship, hospital or prison, which is repaid from the cash-flow of that project. Project finance is different from traditional forms of finance because the financier principally looks to the assets and revenue of the project in order to secure and service the loan. In contrast to an ordinary borrowing situation, in a project financing the financier usually has little or no recourse to the non-project assets of the borrower or the sponsors of the project. In this situation, the credit risk associated with the borrower is not as important as in an ordinary loan transaction; what is most important is the identification, analysis, allocation and management of every risk associated with the project.

RISK MINIMIZATION PROCESS

Financiers are concerned with minimizing the dangers of any events which could have a negative impact on the financial performance of the project, in particular, events which could result in: (1) the project not being completed on time, on budget, or at all; (2) the project not operating at its full capacity; (3) the project failing to generate sufficient revenue to service the debt; or (4) the project prematurely coming to an end.

The minimization of such risks involves a three step process. The first step requires the identification and analysis of all the risks that may bear upon the project. The second step is the allocation of those risks among the parties. The last step involves the creation of mechanisms to manage the risks.  If a risk to the financiers cannot be minimized, the financiers will need to build it into the interest rate margin for the loan.

STEP 1 - RISK IDENTIFICATION AND ANALYSIS - Acterra will assist the project sponsors in preparing a feasibility study which will be studied in detail by the financiers.  The matters of particular focus will be whether the costs of the project have been properly assessed and whether the cash-flow streams from the project are properly calculated. Some risks are analyzed using financial models to determine the project's cash-flow and hence the ability of the project to meet repayment schedules. Various classes of risk that may be identified in a project financing will be discussed below.

STEP 2 - RISK ALLOCATION - Once the risks are identified and analyzed, they are allocated by the parties through negotiation of the contractual framework. Ideally a risk should be allocated to the party who is the most appropriate to bear it and who has the financial capacity to bear it.  Financiers attempt to allocate uncontrollable risks widely and to ensure that each party has an interest in fixing such risks.

STEP 3 - RISK MANAGEMENT - Risks must be also managed in order to minimize the possibility of the risk event occurring and to minimize its consequences if it does occur. Financiers need to ensure that the greater the risks that they bear, the more informed they are and the greater their control over the project. Since they take security over the entire project and must be prepared to step in and take it over if the borrower defaults.

Acterra can assist in structuring projects to allow the developer to achieve greater leverage than is normally possible.