Transcript The New World of Construction Procurement

Saskatchewan Chamber of Commerce
P3 Summit
Innovation in Financing Infrastructure Projects
September 9, 2014
presented by
Aon Construction and Infrastructure Services
Agenda
• Canadian Public, Private, Partnerships (P3) Success Factors
• Factors Fueling Innovation in P3 Financing
• Public Sector Financing Innovation in P3s
• Private Sector Financing Innovation in P3s
• Typical Financing Solutions – Canadian P3s
• Typical Credit Provisions between Lender and Project Co
• Current Innovation in Performance Security
• How to Creatively Finance Infrastructure Projects
Aon Risk Solutions™ is a trademark licensed for use by Aon Reed Stenhouse Inc.
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Canadian P3 Success Factors
1.
Strong and Steady P3 Pipeline
2.
Mature Market with 214 projects in various stages (completed, in operation,
under construction, open RFP, open RFQ, etc.) source: C2P3 August 2014
3.
No one model fits all:
–
Delivery models include BF / DBF / BFM / DBFM / DBFOM
4.
P3 market is broad and deep in the players it attracts
5.
Risks allocated to the party best suited to take on the risk resulting in VFM
6.
Payments made based on performance resulting in on-time & within budget
7.
Continuous P3 financing innovation over the years
Aon Risk Solutions™ is a trademark licensed for use by Aon Reed Stenhouse Inc.
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Factors Fueling Innovation in P3 Financing
• Credit and liquidity Crisis
• Competition within the Financial Markets
• Introduction of European Lenders
• Size of Transaction
Aon Risk Solutions™ is a trademark licensed for use by Aon Reed Stenhouse Inc.
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Public Sector Financing Innovation in P3s
• Increase in Substantial Completion Payment (SCP)
• Credit Spread Benchmarking Process
• Collapse of Financial Close and Commercial Close
• Introduction of Milestone Payments in Ontario
• EDC backed LC
Aon Risk Solutions™ is a trademark licensed for use by Aon Reed Stenhouse Inc.
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Private Sector Financing Innovation in P3s
• Broadly Distributed Long Amortizing Bond Solution
• Narrowly Distributed Private Placement Bond (Short and Long)
• Broadly Distributed Bullet Bond (Short and Long)
• Structured Deposit Notes (SDNs)
• Hybrid Financing Solutions
• Mini Perm Solutions & Refinancing
• Alternative Assets posted in lieu of Letter of Credit
• Modeling life cycle/other components of the monthly service payment for most
cost effective bid
Aon Risk Solutions™ is a trademark licensed for use by Aon Reed Stenhouse Inc.
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Typical Financing Solutions – Canadian P3s
• Short Term (Term 3 to 6 years):
• Bank Syndicates (primarily dominated by Canadian banks + two Japanese banks)
• Broadly distributed Bullet Bonds (Pension Funds, LifeCos, Asset Managers, etc.)
• Narrowly distributed Private Placement Bonds (LifeCos )
• Medium Term (Term 7 to 10 years):
• Narrowly distributed Private Placement Bonds
• Bank Syndicates
• Long Term (Avg. life - 23 to 30 years and Term – 33 to 36 years):
• Broadly distributed Amortizing Bonds (Pension Funds, LifeCos, Asset Managers, etc.)
• Broadly distributed Bullet Bonds (Pension Funds)
• Narrowly distributed Private Placement Bonds
• Long Term Bank Financing (European Bank Mini Perm)
Aon Risk Solutions™ is a trademark licensed for use by Aon Reed Stenhouse Inc.
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Typical Credit Provisions between Lenders & Project Co
Construction Period
Typical
Performance
Security
Package
• Letter of Credit worth 5% to 8% of
the Construction Cost
• Parental Company Guarantee for
40% - 50% of the construction cost
• 50% Performance Bond & 50%
Labour / Material Bond
Operating Period
• Letter of Credit worth 50% of the next year’s
Maintenance Payment + [average annual
lifecycle payment]
• Parental Company Guarantee worth 150% 300% of the next year’s Maintenance
Payment + [average annual lifecycle payment]
• Subguard (Contractor Default
Insurance)
• Surety on Demand Bond (recent)
Look Forward
Tests –
Operations
Period
N/A
9th ,15th ,20th and 25th anniversaries of SC + [last
5 years] , an Independent Lifecycle Monitor will
conduct lifecycle look forward-tests
Lender
Longstop
3 months – 6 months
N/A
Leverage
5% to 8% Equity (A rated)
3% to 8% Equity (A rated)
10-25% Equity (BBB rated)
10-25% Equity (BBB rated)
6 months
6 months
DSRA
N/A
Min.
DSCR
Aon Risk Solutions™ is a trademark licensed for use by Aon Reed Stenhouse Inc.
1.15x – 1.42x
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Current Innovation in Performance Security
Liquid Surety / P3 Bonds
• Demand Bond
• Demand Bond plus Standard Performance Bond
• Convertible Surety Bond
• Loss Advance P3 Bond
Non-Bank Letter of Credit Backstop
O&M Performance Bond (standard and liquid surety)
Liquidity in key insurance covers (property, professional and pollution)
Aon Risk Solutions™ is a trademark licensed for use by Aon Reed Stenhouse Inc.
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How to Creatively Finance Infrastructure Projects
• Choose a Financial Advisor with thorough knowledge and experience with P3s, the
various financing solutions available in Canada, and relationships with various P3 debt
and equity investors, and rating agencies;
• Ensure your Financial Advisor competes the various financing solutions overall (and
performance security options within) to find the most cost effective solution with a high
degree of deliverability;
• Choose Insurance Advisor/Broker with thorough knowledge and experience with P3s,
performance security options, rating agency criteria, and strong relationships with the
insurance/surety markets and other P3 players;
• Consider all available performance security options to minimize overall cost.
Aon Risk Solutions™ is a trademark licensed for use by Aon Reed Stenhouse Inc.
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APPENDIX: Aon Construction Services Group Canadian Credentials
• Broker/Advisor to 2,400 Canadian construction clients of all sizes
• Broker/Advisor to over 50% of the Top 100 Canadian Projects
• Broker/Advisor to over 84% of all Canadian P3 Projects
• Long time relationships with P3 participants (Contractor, Debt, Equity,
Insurance/Surety markets, Rating Agencies, Financial Advisors)
• 25% of construction insurance in Canada is brokered by Aon
• 97% of all Canadian Contractor Default Insurance premium placed
• 23% -26% of all surety bonds in Canada are brokered by Aon (last 7 years)
Aon Risk Solutions™ is a trademark licensed for use by Aon Reed Stenhouse Inc.
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Contacts
Michael Sali, B.Admin., CAIB | Vice President
Construction Services Group | Surety
2103 – 11th Avenue, Suite 800 | Regina, Saskatchewan S4P 3Z8
t +1.306.569.6704 | m +1.306.502.6758 | f +1.306.359.0387
[email protected] | aon.ca
Aon Reed Stenhouse Inc.
Kent Peters | Senior Vice President - National Director Surety
Aon Risk Solutions | Construction Services Group
20 Bay Street | Toronto, Ontario M5J 2N9
t +1.416.868.5996 | m +1.416.419.6475
[email protected] | aon.ca
Aon Reed Stenhouse Inc.
Jim Cahill | Senior Vice President
Aon Risk Solutions | Construction Services Group
20 Bay Street | Toronto, ON M5J 2N9
t +1.416.868.2409 | m +1.647.534.6526
[email protected] | aon.ca
Aon Reed Stenhouse Inc.
Aon Risk Solutions™ is a trademark licensed for use by Aon Reed Stenhouse Inc.
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