Risk Mitigation in Public Private Partnerships – PPP – P3
Financing, Design, Build & Maintenance challenges for public private partnership (P3) Projects
The ongoing global financial crisis has drastically reduced available credit and government participation in PPP financed projects. The world “crisis” affected all asset classes and sectors, lenders responded with changes to the P3 form, financing dynamics and increased collateral security requirements affecting the P3 procurement process.
Many notions exist about P3 projects and the costs. Fact is P3s really do work. For any project to be effective it must not use old models for the structure and the form of the development and its financing metrics models. Many new instruments protecting Stakeholder Cooperatives and Joint Venture Agreements exist. Instruments mastered by Matrixz Consortia facilitators that protect the authority, the community and the developer.
This section explores some of the key factors and their impacts to the creation of sustainable profitable P3 financing including;
Project financing matrices
Long-term permanent funding solutions
Perception of increased risk in PPP projects
Highly restrictive credit-approval practices
Cost of borrowing
Risk aversion metrics
Developments affecting the P3 procurement process
Recent changes to P3 documentation
Default, market-flex and market-out
Lenders issues with long-term debt
Bank Bond Financing
Mini-perms; Short-term financing typically used to pay off income-producing developments, payable under terms in three (3) to ten (10) years.
Mini-perms carry an obligatory balloon payment at the terms end, with the anticipation that the loan can then be easily refinanced because the property now has appraised equity and enough history to successfully obtain permanent financing.
Successful projects have agreements which contain incentives for the lenders to extend and stay with the project when certain milestones are reached. Successful project tenders begin the plan or RFP response with start-up and subsequent financing requirements with guarantees at the start to turn key.
Mini-perms really do not work outside a Special Purposes Vehicle (SPV) in the context of a P3 structure, which by the very nature of a PPP requires a long-term funding solution at the outset guaranteed? If a mini-perm is the only solution used to start-up or bridge finance it should be a flexible soft mini-perm.
Type of P3 Partnership
- Pre-development Agreement
- Concession – Investor Financed
- Concession – Tax-exempt Financed
- Long term lease by either party
- Federal or Local Authority Availability Payments
- Stakeholders Cooperatives
- Joint Venture Agreement
Delivery and Commissioning
Commitment-letters from lenders
Staple financing option
Tax and Availability-Payment Structures and Law
P3 models retain value as the superior matrix for the procurement of public infrastructure.
There is no development metric whose cardinality is strictly between that of the integers and that of the real numbers.
This page under construction!