SECTION B QUESTION ONE Initially, promoter organisations were satisfied with obt
ID: 2658640 • Letter: S
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SECTION B QUESTION ONE Initially, promoter organisations were satisfied with obtaining the majority of funding from a syndicated bank loan. However increasingly more sophisticated financial packages are being proposed including a variety of senior debt and sometimes bond financing. Discuss how and why the preparation of a inancial package might vary (20 Marks) QUESTION TWO (a) Discuss the meaning of each of the following terms "off Balance sheet Financing "concession Agreement" "Credit rating" (10 Marks) (b) Discuss the events that might lead to the re-financing of a concession. (10 Marks) QUESTION THREE Private finance is not a panacea for the funding of all public projects" Discuss the statement above and identify the various types of project s which would be better value for money if funded by the public sector alone. (20 Marks) QUESTION FOUR. (a) Explain three sources of financing that can be used in project financing giving the advantages and disadvantages. (15 Marks) (b) Explain what capital market credit ratings represent and the role their play in the capital markets. (5 Marks)Explanation / Answer
A2.
A.
Off balance sheet financing - It is an accounting method recognized by Generally Accepted Accounting Principles. It doesnot reflect on company balance sheet. It is near to debt financing and hence doesnot appear as a liability on the balance sheet. Its main aim to maintain the debt of the company so that its debt to equity ratio is low. Example - creation of special purpose entties and leasing, debt factoring, securitization, sale and repurchase arrangements.
Concession agreement - It is the contractual agreement between the public and private firm in a public private partnership along with their specified obligations. It provides right for business operation to the company. It is the contract between the implementing authority and Concessionaire. It provides the rights conferred and obligations imposed on concessionaire which include right to design, construct, commission, operate, maintain, repair, charge and collect tolls.
Credit rating is a rating given to the company based on its credentials. It is the analysis or assesment of the credit risk related to the business. Credit rating determines whether the borrower will be able topay theloan back on time or not. It provides better investment decisions and assurance of safety to the money lenders and provide easy loan approval to the borrowers. Credit rating angencies plays an important role in evaluating the credit worthiness of the entity.
B. Refinancing can take different forms such as debt pricing reduction, debt maturity, increase in gearing.
The concessionaire shall not enter into any Refinancing without the prior consent of implementing authority, and where it consents to any refinancing, the concessionaire shall pay to the implementing authority, some percent of an amount which is the lesser of the refinancing gain.
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