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Course 2018-2019 a.y.

20439 - STRUCTURED AND PROJECT FINANCE

Department of Finance

Course taught in English


Go to class group/s: 31

MM (6 credits - I sem. - OP  |  SECS-P/11)
Course Director:
STEFANO GATTI

Classes: 31 (I sem.)
Instructors:
Class 31: STEFANO GATTI


Prerequisites

It is recommended to have attended a basic corporate finance course and master basic concepts of mathematical finance and inferential statistics. Good knowledge of Excel is an useful element for attending students.


Mission & Content Summary
MISSION

In 2017, issuance of structured finance products in the USA has reached 1.7 tn USD from 0.9 tn USD of the pre-Lehman Brothers default years. In the same year, the equity fundraising for infrastructure financing has reached about 50 bn USD, almost twice the value of the early 2010s. Such figures show the mounting investors’ appetite for these alternative asset classes and the growing importance of the allocation given to infrastructure and securitization in the portfolios of institutional investors. However, these products are far from being plain vanilla, show idiosyncratic risk components that require an in-depth knowledge of how securitized products are structured and how infrastructure projects are financed. The course mission is the analysis of the practical aspects of two of the most relevant structured finance transactions: project finance and asset backed securitization. At the end of the course, students are in the position to analyze a complex transaction, to identify key elements of the deal and to suggest proper solutions for deal structuring in the perspective of a financial advisor.

CONTENT SUMMARY

After an introduction focused on the business of structured finance and the main areas of business that can be included in its perimeter, the course analyzes the topic of infrastructure financing. This section of the course is made up of the following building blocks:

  • What is project finance and what does differentiate it from traditional corporate finance?
  • The network of contracts in a project finance transaction.
  • Risk management of an infrastructure finance deal: risk analysis and risk allocation.
  • Capital budgeting of an infrastructure finance deal and assessment of the deal’s sustainability from the shareholders’ and creditors’ perspective.

The second part of the course is dedicated to asset-backed securitization and is carried out through the analysis of:

  • Credit Derivatives: types and characteristics.
  • Credit Derivatives: Risk Analysis and Fundament of Pricing.
  • Synthetic securitization: main aspects and risk analysis.
  • Cash securitization deals: types and characteristics, main applications and focus on non-performing loans portfolios.

Intended Learning Outcomes (ILO)
KNOWLEDGE AND UNDERSTANDING
At the end of the course student will be able to...
  • Recognize how a transaction can be classified in the perimeter of structured finance by looking at some discriminating criteria.
  • Identify the phases of a structured finance deal – origination, implementation and execution – for both infrastructure projects and asset backed securities.
  • Identify the main risks underpinning infrastructure finance and asset backed securitization and the ways and tools to mitigate them.
APPLYING KNOWLEDGE AND UNDERSTANDING
At the end of the course student will be able to...
  • Analyze the characteristics of an infrastructure project and to identify the best financial mix of resources (equity, subordinated shareholders’ loans, senior debt) to finance it.
  • Negotiate the terms and conditions of a financial package for a project finance transaction.
  • Analyze a financial portfolio to be used as collateral for asset-backed bonds.
  • Price a cash securitization or a synthetic securitization with the use of credit derivatives.

Teaching methods
  • Face-to-face lectures
  • Guest speaker's talks (in class or in distance)
  • Exercises (exercises, database, software etc.)
  • Case studies /Incidents (traditional, online)
  • Group assignments
  • Interactive class activities (role playing, business game, simulation, online forum, instant polls)
DETAILS
  • Face-to-face lectures are accompanied external guest speakers and case discussions. The presence of speakers provide students with the perspective of professionals working in the field of structured finance about the topics covered in the course and in most cases are accompanied by presentations of real-life deals. 
  • The use of cases aims at better connecting the body of knowledge covered in the course with real life examples, typically focused on complex structured finance transactions.
  • The interaction between the instructor and students during the case discussions and the speakers' presentations helps students understand how professionals in the field approach a transaction and organize it in a structured process going from the deal origination to the final deal execution.
  • Lastly, the business game mimics a complex negotiation between sponsors and lenders of an infrastructure project to win a concession agreement from a Public Authority and enable students to apply the body of knowledge of the course to a real life simulation. 

Assessment methods
  Continuous assessment Partial exams General exam
  • Written individual exam (traditional/online)
  •     x
  • Group assignment (report, exercise, presentation, project work etc.)
  • x    
  • Business game
  • x    
    ATTENDING STUDENTS

    Attending students can opt to take the exam with the “assignment program”. In this case, groups of students (to be communicated to the course tutor by a predefined deadline) work on 2 case studies (one on the project finance part and the other on the securitization part). The average mark obtained in the two case studies count for 40% of the final exam mark. For students enrolled in the “assignment program”, the final written exam is based on 3 questions divided into sub-questions. A mix of theoretical questions and applications/exercises is the standard format of the exam and no multiple choice questions are present.

    • The final exam counts for 60% of the final grade.
    • The questions of the written exam require either to argument some specific issues discussed during the course or to apply the concepts to numerical examples and mini cases/exercises.
    • The final objective of the exam is to verify the students’ capabilities and mastery to collect and to organize information and numerical data to solve some of the problems faced by financial advisors working with industrial developers or asset managers of alternative investments.
    NOT ATTENDING STUDENTS

    Final written exam including 4 questions on the body of knowledge of the whole course.

    • No partial exam is scheduled.
    • A mix of theoretical questions and applications/exercises is the standard format of the exam and no multiple choice questions are present.
    • The final exam counts for 100% of the final grade.
    • The questions of the written exam require either to argument some specific issues discussed during the course or to apply the concepts to numerical examples and mini cases/exercises.
    • The final objective of the exam is to verify the students’ capabilities and mastery to collect and to organize information and numerical data to solve some of the problems faced by financial advisors working with industrial developers or asset managers of alternative investments.

    Teaching materials
    ATTENDING AND NOT ATTENDING STUDENTS
    • Textbook: S. GATTI, Project Finance in Theory and Practice, Academic Press, 2018, III Edition.
    • Slides available in the Bboard Platform.
    • Text of case studies available in the Bboard Platform via Bocconi Library’s Course Reserves.
    Last change 04/07/2018 17:32