Would you like to take out cover for the credit risk you will be running on a special purpose company or a greenfield project? A project finance risk assessment could make this possible.
Credit insurance is not only taken out on existing businesses. There are also options if the borrower has no "track record" and we cannot fall back on guarantees. Credit insurance is also an option if the planned investment is disproportionate to the borrower's financial position. In these cases, we apply a project finance assessment, where we assess the borrower's expected cash flows (and thus repayment capacity).
For project finance transactions we strongly recommend that you contact us at the earliest possible stage in order that the most important aspects of the project can be discussed with all parties involved. This avoids unnecessary delays in the financing procedure and/or term sheet renegotiations. When you contact us for the first time it helps us a lot in case your provide us with the following information:
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description of the project and the potentially involved parties (shareholders, banks, contractors, suppliers, operators and customers);
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potentially involved Dutch contractors and suppliers versus other contractors and suppliers (names and indication of contract amounts);
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draft financing plan (draft overview of origin and use of funds and overview of potentially involved other export credit insurers);
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outline of intended financing conditions and securities;
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envisaged next steps and timeline.
Letter of Interest
If desired, we can send you a "letter of interest" at an early stage. This letter indicates Atradius' interest in insuring the project, subject to the outcome of the risk assessment. This letter can be sent by contractors and/or subcontractors along with a bid. In addition, a letter of interest can be used to approach potential investors and/or banks.
Insurance
The result of a project financing review approved by the credit committee is a Financing Policy. For an overview of the features of this policy click here. If, at the time of approval, the conditions for issuing the policy (including the conditions for first draw under the loan) have not yet been met, you will receive what is known as a coverage commitment.
Application and assessment
The Financing Policy also provides the financing bank with coverage against non-payment by the borrower in the case of project financing. Once we receive the application for a Financing Policy, we can get to work on the risk assessment. Here we follow three steps:
- analysis of the business plan. Assumptions regarding the project's expected income and operating costs are validated at this step. At this stage, we establish the cash flow that we consider realistic (the so-called base case);
- sensitivity analysis. At this stage we identify, possibly with the help of independent external experts, the main project risks. We test their impact on the cash flow in a financial model. Depending on the desired gap between the available cash flow and the debt obligations (expressed in the so-called debt service coverage ratio), the debt capacity of the project is also determined;
- term sheet and project agreements. In this step, we mitigate the risks identified in step 2 to the extent possible. This is done by stipulating collateral in the term sheet and making agreements on the conditions against which the loan must be repaid. We often use an independent legal advisor for this purpose.
The three steps are done in parallel as much as possible.
Risk sharing
Atradius attaches importance to the insured banks being sufficiently involved in the transaction in project financing. The covered percentage for commercial risks is therefore lower in project finance than in regular transactions. It is 70-90%, resulting in an excess of 30- 10%. The size of the required excess also depends on the project risks and the extent to which Atradius depends on third parties (including the bank) for risk assessment.
If, in addition to the Atradius covered tranche, the insured banks also participate in a commercial tranche, we consider the share in the commercial tranche as the excess. Then up to 100% coverage can be provided on the Atradius covered tranche.
Experience
Atradius has extensive project finance experience. Various projects in different sectors - oil and gas, ships, infrastructure and (renewable) energy - and in different parts of the world have been underwritten by Atradius on behalf of the State. In many of these transactions, we have partnered with international banking syndicates and with other export credit insurers.
In an interview for Rabobank Highlights , read how we worked with the customer to find a solution for its green energy project.
