John D. Finnerty - Project Financing: Asset-Based Financial Engineering

Contents

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Copyright 2013 by John D. Finnerty. All rights reserved.

Published by John Wiley & Sons, Inc., Hoboken, New Jersey.

Published simultaneously in Canada.

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Library of Congress Cataloging-in-Publication Data:

Finnerty, John D.

Project financing : asset-based financial engineering / John D. Finnerty, PHD. Third edition.

pages cm. (Wiley finance series)

Includes bibliographical references and index.

ISBN 978-1-118-39410-6 (cloth); ISBN 978-1-118-42184-0 (ebk);

ISBN 978-1-118-41759-1 (ebk); ISBN 978-1-118-57219-1 (ebk)

1. Capital investments. 2. Capital investmentsCase studies. 3. CorporationsFinanceCase studies. 4. Financial engineering. I. Title.

HG4028.C4F488 2013

658.152dc23

2013007116

To my wife,
Louise Hoppe Finnerty,
and my son,
William Patrick Taylor Finnerty,
for their understanding and encouragement.

Preface

Project finance has intrigued me ever since I was introduced to it as an associate at Morgan Stanley & Co. My experience in project finance, both as an investment banker and as a professor of finance at Fordham University, has firmly convinced me of its usefulness, especially in enabling the emerging economies to unlock the value of their natural resources and build the infrastructure they need to move forward.

Project financing is a well-established technique for large capital intensive projects. Its origins can be traced to the thirteenth century when the English Crown negotiated a loan from the Frescobaldi, one of the leading merchant bankers of the period, to develop the Devon silver mines. They crafted a loan arrangement much like what we would call a production payment loan today.

A great variety of investments have since been project financed, including pipelines, refineries, electric power generating facilities, hydroelectric projects, dock facilities, mines, mineral processing facilities, toll roads, and many others. Indeed project finance experienced a resurgence in the 1980s when it was used frequently to finance cogeneration and other forms of power production. It grew in the 1990s as a means of financing projects designed to help meet the enormous infrastructure needs that exist in the developed countries and especially in the emerging markets.

I wrote the first edition of this book with both practitioners and students of finance in mind. For practitioners, project financing can provide a cost-effective means of raising funds. Sponsors should carefully consider using it whenever a project is capable of standing on its own as a separate economic entity. In this book, I describe the types of capital investments for which project financing is suitable and explain how to engineer the financing arrangements that support it. Because of project financing's enormous practical value, students of finance would be wise to learn about it so they can include it in their financing skill set.

The audience for this book includes:

Financial managers who are responsible for arranging financing for their companies' projects.

Government officials who are wondering how to finance their wish lists of infrastructure projects.

Investment bankers and commercial bankers who assist companies in raising funds for large capital intensive projects.

Accountants, consultants, lawyers, and other professionals who work in the corporate finance area and wish to keep up-to-date.

Investors who are considering committing funds to limited-purpose companies or to mutual funds that have been set up to invest in infrastructure projects in the emerging markets.

MBA students and executive MBA students studying corporate finance.

Students of finance who wish to be fully knowledgeable concerning the techniques modern financiers are using to finance large-scale projects.