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Feedback Quiz: Week 1
You submitted this quiz on Sun 15 Jun 2014 10:36 PM IST. You got a score of 7.67
out of 10.00. You can attempt again, if you'd like.
This quiz is based on the video contents of the first week of the course.
Some of the questions refer to the ProjectCo case you find below. Please read it carefully before
answering the questions.
ProjectCo CASE
The newly-formed Luxembourg-based Special Purpose Vehicle Watercraft Capital S.A. (the
issuer) has issued 1.4 billion 5.756% bonds due December 2034 and has lent the proceeds to
the Spain-based Special Purpose Vehicle Escal UGS S.L. (ProjectCo).
ProjectCo was granted a 30-year concession (extendable for two 10-year periods) by the
Spanish government in 2008 for the re-development of Castor, a depleted oilfield reservoir,
originally exploited in the 1970s-1980s off the northern Mediterranean Spanish coast, as a 1.9
billion cubic meter gas storage facility. By injecting and extracting gas into and from this
geologically suitable reservoir, ProjectCo will serve to modulate and guarantee the supply to the
Spanish gas system. The proceeds have been used to refinance ProjectCo's outstanding loans
which financed the construction of the project facilities.
KEY FEATURES: regulated revenues, not subject to volume or price risk
SECTOR: Oil and Gas
PARTICIPANTS:
Joint Book-Runners: Santander Global Banking & Markets (Global Coordinator), Bankia S.A.,
Caixa Bank S.A., Crdit Agricole Corporate and Investment Bank, Natixis, Socit Gnrale, and
BNP Paribas
Sponsors: Escal is 66.7% owned by ACS Servicios, Comunicaciones y Energia, S.L. (ACS SE,
100% owned by ACS Actividades de Construccin y Servicios, S.A. [ACS]) and 33.3% owned by
CASTOR UGS L.P. (controlled by Dundee Energy Ltd.)
Off Taker: Spanish gas system
Engineering, procurement, and construction (EPC) contractor: Joint venture with joint-and-
several obligations between ACS Servicios, Comunicaciones y Energa, S.L. (ACS SE) and
Cobra Instalaciones y Servicios, S.A.
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Operations & Maintenance contractor: Joint venture with joint-and-several obligations between
ACS Servicios, Comunicaciones y Energa, S.L. (ACS SE) and Cobra Instalaciones y Servicios,
S.A.
Question 1
Consider the ProjectCo contractual network: Who are the providers of the equity funds?
Your Answer Score Explanation
The public sponsors 0.33
The financial sponsors 0.33
The industrial sponsors 0.33
Total 1.00 / 1.00
Question Explanation
What category of players do you see in this case?
- Industrial Sponsors see project financing as an initiative linked to their core business.
- Public Sponsors see project financing as an opportunity to realize public works which are
economically self-sustaining with limited public investment.
- Pure Financial Sponsors with no industrial rationale have a high tendency for risk and see
project financing as an opportunity to get substantial returns on their investments. ProjectCo
CASE
Sponsors: Escal is 66.7% owned by ACS Servicios, Comunicaciones y Energia, S.L. (ACS SE,
100% owned by ACS Actividades de Construccin y Servicios, S.A. [ACS]) and 33.3% owned by
CASTOR UGS L.P. (controlled by Dundee Energy Ltd.).
Question 2
Consider the ProjectCo: Which phase is the project in now?
Your Answer Score Explanation
The operational phase
The construction phase 0.00
Total 0.00 / 1.00
Question Explanation
We have seen the lifetime of the project can be divided into the CONSTRUCTION phase and
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the OPERATIONAL phase.
ProjectCo Case:
Hint: According to the information provided "The proceeds have been used to refinance
ProjectCo's outstanding loans which financed the construction of the project facilities".
Question 3
Consider the ProjectCo: Which of the following contracts you DO NOT find in the contractual
network?
Your Answer Score Explanation
The operation and maintenance contract
The concession agreement
Agreements with suppliers 1.00
Total 1.00 / 1.00
Question Explanation
Consider the contractual network of ProjectCo CASE:
CONCESSION AGREEMENT - ProjectCo was granted a 30-year concession (extendable for two
10-year periods) by the Spanish government in 2008 for the re-development of Castor, a
depleted oilfield reservoir, originally exploited in the 1970s-1980s off the northern
Mediterranean Spanish coast, as a 1.9 billion cubic meter gas storage facility.
EQUITY CONTRIBUTION AGREEMENT - Sponsors: Escal is 66.7% owned by ACS Servicios,
Comunicaciones y Energia, S.L., and 33.3% owned by CASTOR UGS L.P.
SALES AGREEMENT - Off Taker: Spanish gas system
CONSTRUCTION AGREEMENT - Engineering, procurement, and construction (EPC)
contractor: Joint venture with joint-and-several obligations between ACS Servicios,
Comunicaciones y Energa, S.L. (ACS SE) and Cobra Instalaciones y Servicios, S.A.
O&M CONTRACT - Operations & Maintenance contractor: Joint venture with joint-and-several
obligations between ACS Servicios, Comunicaciones y Energa, S.L. (ACS SE) and Cobra
Instalaciones y Servicios, S.A.
Question 4
Which of the following is a motivation to use project finance instead of corporate finance?
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Your Answer Score Explanation
Diversifying cash flows
Avoiding risk of contamination
Coinsuring debt
Total 0.00 / 1.00
Question Explanation
We have seen that incorporating the new venture in a SPV brings the following benefits from
the project sponsors' point of view:
- Financial flexibility is maintained intact;
- Possibly cheaper cost of funding of new financial resources for the initiative if compared to
corporate loans;
- Avoidance of contamination risk.
From from the point of view of project lenders/creditors incorporating the new venture in a SPV
brings the following benefits:
- Full control over the project cash flows;
- Easier monitoring focused on one initiative;
- Possible tie up of management behavior with covenants and restrictions
Question 5
Which of the following characteristics of a project makes it suitable for project finance?
Your Answer Score Explanation
A project is too large to be financed with a corporate
balance sheet
1.00
A project typically operates in markets with low entry
barriers
A project involves a high technological risk
Total 1.00 /
1.00
Question Explanation
For example take the Metro 5 Case we have discussed, what makes it suitable for project
finance?
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Question 6
What category/categories of sponsors most typically play a dual role?
Your Answer Score Explanation
Industrial sponsors 0.33
Public sponsors 0.00
Financial sponsors 0.33
Total 0.67 / 1.00
Question Explanation
DUAL ROLE means a sponsor is also linked to the SPV through one or more industrial
contracts.
Hint: Think about the Metro 5 Case we saw together.
Question 7
Which of the following features characterizes a Public-Private Partnership (PPP)?
Your Answer Score Explanation
The fact that public sponsors are never entitled to dividends
The possibility to raise funds by means of a public offer of
stock and/or bonds
The presence of a concession agreement 1.00
Total 1.00 /
1.00
Question Explanation
Public Sponsors, who see project financing as an opportunity to realize public works which are
economically self-sustaining with limited public investment, enter in an agreement with a Private
counterpart (the SPV). Their role is typically based on a Concession Agreement.
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Question 8
Which of the following statements about the contractual network is correct?
Your Answer Score Explanation
It is typical to find a financial sponsor in a concession
agreement
When a counterpart of a project contract is also an industrial
sponsor, the incentive structure is more efficient
1.00
A less efficient incentive structure is reached when the
counterpart of a project contract is also an industrial sponsor
Total 1.00 /
1.00
Question Explanation
Hint: for example take the case of an industrial sponsor who is also the contractor in the
construction agreement as we have seen in the Metro 5 Case. Is it not in its best interest to
build the facility in the best possible way?
Question 9
Think of a project for a toll road: Which of the following contracts would less likely be included in
its contractual network?
Your Answer Score Explanation
A concession agreement
A construction agreement
A supply agreement 1.00
Total 1.00 / 1.00
Question Explanation
Hint: think about the operation of a toll road: what is needed to operate it? Who is the final
user?
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Question 10
What category of sponsors most typically also provides know-how?
Your Answer Score Explanation
Industrial sponsors 1.00
Financial sponsors
Public sponsors
Total 1.00 / 1.00
Question Explanation
Hint: remember the Metro 5 Case we saw together. Who among the sponsors do you think has
some specific competences to carry out infrastructure projects?