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6/15/2014

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Feedback — Quiz: Week 1

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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., Crédit Agricole Corporate and Investment Bank, Natixis, Société Générale, 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 Construcción 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-andseveral obligations between ACS Servicios, Comunicaciones y Energía, 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 Energía, 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

The public sponsors

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0.33

The financial sponsors

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0.33

The industrial sponsors

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0.33

Total

Explanation

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 Construcción 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 Total

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0.00 0.00 / 1.00

Question Explanation We have seen the lifetime of the project can be divided into the CONSTRUCTION phase and https://class.coursera.org/infrafinance-001/quiz/feedback?submission_id=5549

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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 Total

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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 Energía, 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 Energía, 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

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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 A project is too large to be financed with a corporate balance sheet

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Explanation

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A project typically operates in markets with low entry barriers A project involves a high technological risk Total

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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

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Industrial sponsors

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0.33

Public sponsors

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0.00

Financial sponsors

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0.33

Total

Explanation

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 Total

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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

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sponsor, the incentive structure is more efficient A less efficient incentive structure is reached when the counterpart of a project contract is also an industrial sponsor Total

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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 Total

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1.00 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 Industrial sponsors

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Explanation

1.00

Financial sponsors Public sponsors Total

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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?

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