Category: Designing

  . Securitization of Project Finance Loans By: J. Paul Forrester1 There is a huge unmet need for project financing both domestically and internationally. Various types of securitization transactions can be used to assist in meeting this need. For example, after a project has been constructed and is performing satisfactorily, a special purpose entity (“SPE”) could issue debt and equity securities and use the proceeds to purchase project loans from the original lender. Alternatively, at such time, the SPE could use the proceeds to refinance a project at a lower rate. In both cases, the banks and other financial institutions which originated the project financing and evaluated and took the construction and similar risks, would be paid out, thereby making these funds available to be lent to finance other projects. I. Introduction A. Unmet Need for Infrastructure and Other Project Financing Project finance has long been an attractive corporate finance option, especially in capital intensive industries such as transportation (aviation, railroads and shipping), mining, oil and gas, pipelines and non-utility power generation. With recent growth in World trade and privatization opportunities, and foreign investment and currently-popular joint ventures and strategic alliances, there is an increased interest in the application of project finance to provide the necessary debt capital therefore. In particular, infrastructure (e.g., transportation, power, telecommunications and environmental) requirements are exploding, both domestically and internationally, far outpacing the public financing available for these requirements. This has led to the exploration and development of private sector alternatives to traditional public financing sources and has created a new lexicon of “public-private partnerships” and “infrastructure privatization” for these activities. A recent survey by Public Works Financing2 indicates that approximately $300 billion of “market-oriented” infrastructure projects are under development or have been funded since the early 1980s, including over 500 privately sponsored, public-purpose facilities in 63 countries. In power alone, the World Bank estimates that there will be about $1 trillion of worldwide investment by the year 2010, especially in the fast-growing emerging markets in Asia and Latin America. Domestically, in its “Financing the Future: Report of the Commission to Promote Investment in America’s Infrastructure”3 the Commission (the “Infrastructure Commission”) found an annual shortfall of between $40 to $80 billion in infrastructure expenditures to meet critical needs, in addition to the available $140 billion spent annually. Environmentally, the United States Environmental Protection Agency (the “EPA”) estimates that a minimum $200 billion of expenditures will be...