Funding Waste Technologies: What makes a project bankable

1
Funding Waste TechnologiesWhat makes a
project bankable?

• Emily Lockyer
• Infrastructure Finance Group
• 22 January 2008

Presentation to North East Recycling Forum
(NERF)
2
Overview

• Introduction
• RBS Experience
• Project Finance as a Funding Solution
• Key Risks in Waste PFI Considerations in making
  a project
• bankable?
• Summary

3

• Introduction

4
RBS Experience

• RBS Experience
• Cornwall Waste Management PFI
• RBS mandated lead arranger and equity provider
  (45) to this project totalling 172m, to provide
  a fully integrated waste solution to Cornwall
  County Council incorporating a 240,000 tpa EFW
  facility. (closed October 2006)
• Northumberland Integrated Waste
• Sole lead arranger and equity provider (42.5)for
  this scheme which involves the construction of a
  135,000 tpa with senior debt facilities totalling
  100m (closed December 2006)
• Allington Kent Enviropower
• RBS acted as mandated lead arranger and sole
  bookrunner for a 150m project financing of Waste
  Recycling Groups development and construction of
  a 525,000 tpa EfW facility in Kent, UK.
• Hereford and Worcester Waste Management Project
• RBS was financial advisor to Mercia Waste
  Management Limited on the 72m Pathfinder PFI
  Project including an EfW plant, under a 25 year
  concession. The transaction won the PFI Local
  Authority Deal of the Year award in 1999.
• Levenmouth Waste Water
• RBS was arranger and bond joint lead manager. We
  provided a 50m bridge facility to support a bond
  issue relating to a new build sewage plant in
  Scotland, awarded to Northumbrian Water Group.
• Lakeside Waste Management

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Project Finance as a Funding Solution

• Three funding options
• Prudential Borrowing (Authority)
• Or through the PFI/PPP
• Corporate Balance Sheet (Sponsor/Contractor)
• Project Finance (SPV)

6
Project Finance as a Funding Solution

• Key Features of Project Finance
• Borrower is thinly capitalised SPV - typically
  geared on 9010
• (DebtEquity) basis
• Loan secured against long-term contracted cash
  flows
• SPV accepts only the risks that it can control
  or mitigate
• Risk allocation between parties
  (Authority/Contractor/Equity
• Providers/Insurance) based on Value For Money
  (VfM)
• Due Diligence Requirement

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Key Risks What makes a Project bankable?
Technology
Authority Expectations meet output
specification? Volumes? Recycling/Diversion
targets? Bank View / Fundability
Planning Delay
Programme Overall Alternative Plant / Sites Price
Inflation
Off take risk / Third Party Income (TPI)
Recycling Price / Term / Market Electricity
Benchmarking RDF/SRF SPV not to take disposal
risk
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Key Risks What makes a Project bankable?
Authority Changes / Exclusivity of waste
Min / Max Calorific Value Envelope Ability to
Influence - Contractor - Authority
LATS / Landfill Tax
Penalise BUT NOT bankrupt SPV Only bankable with
a cap
Termination Risk
SoPC4 Waste guidance (4Ps) Funder Issues Sell
contract / Compensation from Authority
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Key Risks What makes a Project bankable?
Insurance
Premium Sharing VFM insurance not cheap
Relevant Market benchmarked against similar
assets
Environmental Risk
Never an SPV risk Compliant with
legislation Pre-existing Authority Contractor-ca
used Contractor
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Summary

• Credible / reliable Contractor
• Sustainable solution
• Contract based on Government SoPC4
• Offtake risks/rewards to rest with appropriate
  parties
• Equity upside
• Difficult to bank projects with non-proven/small
  contractors
• given risks but not impossible

11
Contact Points
Infrastructure Finance Group Project Export
Finance The Royal Bank of Scotland
7th Floor 135 Bishopsgate London EC2M 3UR
Emily Lockyer 020 7085 9326 emily.lockyer_at_rbs.co
m Associate Director, IFG Project Export
Finance David Newman 020 7085 3958
david.newman_at_rbs.com Senior Director,
IFG Project Export Finance