20439 - STRUCTURED AND PROJECT FINANCE
Course taught in English
Go to class group/s: 31
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 a very useful element for attending students.
In 2019, issuance of structured finance products in the USA has reached 1.9 tn euro from 0.9 tn euro of the pre-Lehman Brothers default years. In the first half of 2019, the equity fundraising for infrastructure financing has reached about 45 bn USD, almost four times 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.
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.
- 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.
- Identify key input variables to set up a capital budgeting exercise for infrastructure and securitization transactions
- 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.
- Price a project finance transaction and set a proper set of covenants for loan agreements
- 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.
- Online 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)
- Online lectures (either synchronous or asynchronous) can sometimes be paired with external guest speakers webinars 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 (synchronous webinars) 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, if technical constraints allow the instructors to set it up, the business game will mimic 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.
|Continuous assessment||Partial exams||General exam|
Even if no distinction is made between attending and non-attending students given the online format of the course, students anyway can opt to take the exam with the “assignment program”. In this case, groups of students (to be communicated to the course teaching assistant 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 will be based on multiple choice questions with a mix of theoretical questions and multiple choice applications/exercises.
- The final exam counts for 60% of the final grade.
- The questions of the written exam require either to reflect on some specific issues discussed during the course or to apply the concepts to numerical examples and mini cases/exercises to solve numerical multiple choice questions.
- 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.
- 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.