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Project Finance - Financing the Project

Understand the mechanics involved in financing a project.

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16 Lessons (56m)

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  • Description & Objectives

  • 1. Financing and Insurance Package

    03:20
  • 2. Understanding Debt Capacity

    03:16
  • 3. How Much can the Project Borrow Workout

    04:17
  • 4. How Much Equity does the Project Need Workout

    03:38
  • 5. Syndicated Loan Financing

    03:45
  • 6. How Many Banks in the Syndicate

    03:40
  • 7. Syndication Strategy

    02:55
  • 8. Financial Crisis and the Development of Club Deals

    01:06
  • 9. Fee Structures in Loan Syndication

    04:20
  • 10. Mandated Lead Arranger 1 Workout

    03:00
  • 11. Mandated Lead Arranger 2 Workout

    05:07
  • 12. What has Changed in the Syndication Market

    03:25
  • 13. Return on Equity of Loan Workout

    05:27
  • 14. Return on Equity of Two Bank Loans Workout

    05:44
  • 15. Other Financing Options

    04:20
  • 16. Project Finance - Financing the Project Tryout


Prev: Project Finance - Risk Management Next: Project Finance - Accounting

Mandated Lead Arranger 1 Workout

  • Notes
  • Questions
  • Transcript
  • 03:00

Calculating fees in syndicated loans 1

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mandated lead arranger Project finance syndicated loans
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Transcript

Okay, so let's take a look at this workout. And what it's asking us to do is to simulate what would happen if we were a mandated lead arranger, which I'll call an MLA. And we are very confident about the market and so we're very confident that if we take on the entire funding amount, which is 1,000, that we can offload it to a bunch of other banks without getting them involved initially as a co-lead. So what's gonna happen is, as the MLA we are going to commit to a thousand and we're gonna take a big fat fee of 2%, and then we are going to sell down the bulk of that thousand. In fact, we're gonna sell 80% of it. And by selling it down, we're gonna have to make that worth the other banks while, the syndicated banks. And so we're gonna give away half the fee, which seems like a body blow, but actually it's not too bad. And this is exactly what we're being asked to do here because the MLA is gonna end up with a quite high fee when you look at it relative to the amount of loan that's being held. So the first thing we should do is we should say, well, how much is gonna be held by the different players? And you can see here we are splitting it into the MLA and then everybody else. So MLA is holding a thousand. Except, it's not gonna be holding a 1,000 because it is going to sell down the bulk of that. And so it's gonna only end up with 20%. And so it's ending up with 200. Now it's holding 200 because although it initially held 1,000, it has sold down 80% of that. And so the syndicated banks are now holding 800 of the loan. And so you can see the, the funding required by the project. No money kind of gets lost or anything. We are simulating who ends up with the debt. So who is the lender? And the MLA is a minority lender now, whereas the rest of the syndicated banks are majority lenders. Now, although the MLA initially gets 2% fee, what's gonna end up happening is they're only actually gonna end up with 1%. But the thing is, the 1% you might expect it to be on the amount held. That's not true. The 1% is on total amount. Okay? So what's gonna end up happening is the MLA will end up with 10. And then let's take a look at what happens with the fee available for sold down financing. So that's the ones that will end up with the syndicated banks. Now you can see they get the same kind of fee and they end up with 10 as well. Now, the last sell here, what it does is it says, put the fees relative to the amount held. And what we can do is we can copy that down and you can see that the MLA is earning extraordinarily high fees per amount held. And that rewards them for starting this whole thing and taking the bold move of doing a kind of such a, a small underwriting and initially holding the whole debt themselves. Okay? So this is a good example of an unequal split with the MLA, getting a much higher rate of return.

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