Project

Finance Managing Project Risk

Objectives:
Project Finance (PFMPR) builds on the Corporate Finance course. The course deals with
financing large projects and covers the evaluation, risk assessment and financing of large
projects.

This is a case based course about financing large projects predominantly in the private sector.
The cases cover aspects of creating value both through investment and financing decisions. The
course will help students understand what project finance is, why it creates value and how to
structure transactions that have a high probability of operational and financial success. The
course will also deepen the understanding of corporate finance. There will also be a section on
restructuring projects in distress.
The course is built on the premise that value can be created by structuring transactions
appropriately which is in contrast to treating the firm as a black box. The cases illustrate how
various aspects of project structure affect the creation of value and the management of risk.
Course Requirements:
As the course builds on the first year finance courses a high level of comfort with those courses
is expected. The course is fully based on cases and substantial prior preparation is required to
meaningfully benefit from the course.
The class will be divided into groups of five (depending on number of registrations) for
preparation, project and submissions.
Textbooks:
1. Principles of Corporate Finance by Richard A Brealy, Stewart C. Myers & Franklin Allen
(BMA)
Evaluation and Deliverables
Class preparation(Group Submission)
Group Presentations
End-term examination (individual)

:
:
:

40%
30%
30%

Course Outline:
Session

Topic

1,

Introduction to project finance

Readings:
1. An overview of project finance and infrastructure finance: 2009 update by
Benjamin Esty (9-210-061)
2. Project finance acronyms (9-207-086)
3. Project Financing: An Economic Overview (UVA-F-1035)

2, 3, 4,

Organization Structure of Projects and Motivations for Using Project Finance

Motivations for using project finance
Firm boundaries determined by financing/ investment issues
Framework for identifying which firms and which assets should use project
finance

Readings:
Infrastructure meet business building new bridges mending old ones an
introduction to the special issue, Nuno Gil & Sarah L. Beckman, California
Management Review
Case: The Calpine Corporation - Evolution from Project to Corporate Finance
(9-201-098)
5, 6

Managing Risky Projects Contractual Structure

Project companies as a bundle of contracts that allocate risk, return and asset
control
Framework for identifying and managing project risk
Structural approaches to risk management
Readings: Understanding and Managing Risks in Large Engineering Projects
Case: Petrolera Zuata, Petrozuata CA (HBS- 299-012)

Managing Risky Projects

Analyzing completion, operating and sovereign risk
Structural Approach to Risk
The role of Multi-Lateral Agencies
Readings: Principles And Guidelines For Effective Insolvency And Creditor Rights
Systems (World Bank Report)
Case: Financing the Mozal Project

8, 9, 10

Group Presentations:
(i) Dharavi: Developing Asias Largest Slum (A) and (B)
(ii) Polands A2 Motorway

11,12

Financing Projects
Bank Loans
Readings: Credit Attributes of Project Finance
Case: Chases Strategy for Syndicating the Hong Kong Disneyland Loan (A)& (B)
(9-201-072)& (9-201-086)
Chases Strategy for Syndicating the Hong Kong Disneyland Loan (A)(HBS
#201-072) The B case is to be distributed during class