Structured Debt Advisory Services

Project Finance

Project Finance is a funding solution for the construction of large-scale capital projects, such as mining and infrastructure. Finance is provided based on the future cash flows of the project and is often long tenor. The debt is typically limited recourse in nature and allows companies to fund major projects off-balance sheet, with the cash flows of the project servicing the debt.

Points for consideration:

• Bankability: is the project viable from a lender’s perspective? Lenders will consider risks related to economics, ESG, technology, construction, offtake and more
• ESG: a critical path for any form of financing. It is imperative that companies take a planful approach to ESG and have a robust management system
• Due Diligence: debt providers will require verification from independent experts that your project will perform as forecast
• Key Metrics: a number of key ratios, primarily DSCR and LLCR, will need to be compliant with pre-agreed thresholds
• Completion and Cost Overrun: mitigation of construction risk is a key consideration for lenders. The instrument and sizing of the overrun facility will be based on the project’s inherent risk

Keen to receive our PF 101? Please contact us and we will be happy to provide.

Alternative Finance

Alternative Finance refers to instruments such as streaming, royalties, prepayment, debt funds, and other tailored sources of funding. In many instances such financing can reduce the equity requirement, but can also reduce the debt capacity of a project. In a challenging market, it can complement or substitute project finance debt. Each facility can be structured in a bespoke manner to the project, but must balance the needs of the borrower with a satisfactory return to the finance provider.

Points for consideration:

• Royalty: a capital amount provided upfront in exchange for an ongoing payment of an agreed percentage of revenues over an agreed tenor.
• Stream: a capital amount received upfront in exchange for an ongoing payment in product as a percentage of total production over an agreed tenor.
• Prepayment: an advance payment made upfront for product that will be delivered.

Subject to the specific characteristics of a project, alternative finance may represent the optimal funding solution. It can be relatively quick to execute, albeit typically more expensive than traditional debt and subject to covenant requirements that may limit the flexibility of the borrower during the term of the facility.

Please contact us for further information.

Commercial Bank Funding

Project Finance debt is a resource intensive process and is expensive for a commercial bank due to the long tenors and capital grace period. We have seen a reduction in the number of banks willing to provide Project Finance, and even more so in relation to metals and mining projects.

Certain commercial banks might only agree to being involved in a project financing as an exception, if there are added benefits, such as (i) the potential for ancillary fees (hedging, capital markets, agency and cash management roles), (ii) existing relationship with one of the sponsors and (iii) possibility to lend under an ECA guarantee.

Points for consideration:

• Commercial banks tend to be more pragmatic and solution-oriented.
• Commercial banks will have a similar goal to close in a timely manner.
• DFIs and ECAs may require commercial banks to participate in a funding to facilitate the due diligence and term sheet negotiation process.

Please contact us for further information.

Development Finance

Development Finance Institutions (DFIs) are often crucial when financing projects in challenging jurisdictions. Their mandates are to support private sector development in developing countries and, given that their primary source of capital is national or international development or through state guarantees, they can provide funding on competitive terms relative to commercial lenders. Inclusion of DFIs and their status provides a strong disincentive against any form of expropriation or government interference.

Points for consideration:

• Lengthy process to closing due to limited resources available and long ESG disclosure requirements
• May not have the mining or mineral processing expertise of a commercial bank, which can result in overly conservative financing terms
• DFI funding provides a strong ESG “stamp of approval” due to their stringent standards

Please contact us for further information.

ECA Finance

Export Credit Agencies (ECAs) offer tied or untied financing and guarantees, supporting loans or providing protection against commercial and/or political risks. This assistance is typically tied to the export of equipment or, in specific cases, the import of minerals for a country’s manufacturing sustainability.

As the importance of certain minerals to industries like automotive and energy grows, more ECAs now provide import/untied/raw materials guarantees.

Points for consideration:

• ECA funding provides a strong ESG “stamp of approval” due to their stringent standards
• Arrangement on Officially Supported Export Credits provides predictable terms
• Often offer long tenors
• Untied credits and loans provide a significant source of liquidity
• It is important to understand how the quantum of coverage is calculated

Please contact us for further information.

Refinancing & Restructuring

Refinancing and restructuring are strategies for organizations to enhance financial health.

Refinancing replaces existing debt with new facilities that have more favorable terms, such as lower interest rates or extended repayment periods. It reduces debt burden and interest expenses, enhancing free cash flows. Refinancing is often triggered by changes in the company’s risk profile or favourable debt market conditions.

Debt restructuring modifies current debt terms to improve the company’s ability to meet obligations. It involves negotiations with creditors to extend maturity dates, reduce interest, or convert debt into equity or equity-like instruments.

Points for consideration:

• Always look for refinancing opportunities, no company should be tied to one financing instrument
• Ensure that financing terms allow for refinancing or early repayment
• A financial adviser can ensure that you have the appropriate financing instrument for each stage of development

Please contact us for further information.

Hybrid Finance

Hybrid financing is a strategic blend of equity and debt instruments that allows for more flexible funding structures. It is a versatile funding mechanism that allows companies to access required capital while mitigating excessive dilution and preserving flexibility. The terms of the equity and debt components in hybrid financing can be negotiated to ensure that the company and its financiers share a commensurate portion of the upside and downside of the business. It represents an adaptable form of financing that can meet the specific needs of a company.

Points for consideration:

• Conversion mechanisms for equity components must align with the company’s growth strategy
• Structure to maximise value creation and minimise dilution

Please contact us for further information.

Bridge Financing

Bridge financing, sometimes referred to as bridge loans or interim financing, is a short-term funding mechanism intended to “bridge the gap” between immediate financial needs and longer-term sources of capital. It is intended to serve as a temporary funding option that provides companies with rapid access to capital. Bridge loans often allow a company to maintain liquidity or continue to operate while long-term options in the form of debt, equity or revenue materialise. Bridge loans are often structured such that they can be repaid with funds from the long-term financing package.

Points for consideration:

• May involve unfavourable interest and fees, or sweeteners like warrants
• Be cautious of fixed repayment dates limiting flexibility around long-term financing
• Consider the ability of the bridge lender to be flexible around terms
• Make conservative assumptions when assessing the required duration of the financing

Please contact us for further information.

Green Finance

Green Financing and Sustainability-Linked Financing have recently evolved in the realm of finance to promote sustainable and responsible investment. These financial mechanisms are designed to direct capital towards projects and enterprises that prioritize environmental and social responsibility, contributing to an increasingly sustainable world.

Points for consideration:

• Green Financing: provides capital to projects and initiatives that have a positive impact on the environment by focusing on conservation, climate change mitigation and fostering sustainable development. Green bonds, green loans and green funds are some of the different forms of financing available
• Sustainability-Linked Financing: takes a more holistic approach, focusing on improving an entity’s overall sustainability credentials, which could cover a range of ESG (Environmental, Social and Governance) objectives, rather than dedicated funds for specific green initiatives. Sustainability-linked financing offers organizations the versatility to allocate funds for various purposes while incentivising continuous improvement in their sustainability practices

Please contact us for further information.

Acquisition Finance

Acquisition finance relates to the capital required to fund the purchase of another business or its assets in the case of a merger, takeover or strategic acquisition. Financing these acquisitions can be a complex process and may involve debt, cash and/or equity. The ability to appropriately structure the capital package is crucial to the success of the acquisition and the subsequent obligations to debt or equity stakeholders. In addition to obtaining the appropriate capital package to fund the acquisition, companies must be aware of the complexities related to terms, due diligence, synergies, and post-acquisition integration.

Points for consideration:

• Identification and mitigation of potential risks associated with the acquisition.
• Financial health of target and acquirer, pre- and post-acquisition.
• Accretion/dilution and balance sheet health post-acquisition.
• Alignment of the acquisition with long-term objectives.

Please contact us for further information.