Pertinencia de un Ecosistema Digital Educativo al Interior de la UAZ

nuMBer 1, knOw yOur PArTnerS

Unsurprisingly, the best operating consortia are those comprising groups of persons coming together in a situation where respect, co-operation and understanding of the needs of the other members is high and the bargaining position of the relevant parties is equal. Unsurprising, also, is the fact that the stars are very rarely aligned in this manner.

In order to put together a bid, or any project for that matter, in a cohesive and co-ordinated fashion, it is important that the JV partner’s inequalities and expectations are discussed and agreed well ahead of time. Any attempt to hide or fudge the issue will, inevitably, show up at a later date, in a far more public forum and will potentially discredit a bid and undermine the confidence of the letting party/financiers to that project.

Issues to be resolved in advance include:

• joint and several or several liability;

• tax positions of the parties and tax structuring issues;

• creditworthiness issues and manner of dealing (upfront equity/bank LCs, etc.);

• desire of the parties to finance on or off balance sheet; and

• negotiation of/voting on contracts with associated third parties (e.g. construction/

O&M arrangements which are typically sourced out by the associates of the JV members).

A failure to address such issues and an unwillingness to ‘grasp the nettle’ but to leave it to others (e.g. financiers/the public authority/their advisers – or worst of all your

co-venturers) to point up the weaknesses in a JV or contracting structure generally leads to protracted and unhappy negotiations and sets a project off on a wrong foot with a mountain of trust and honesty to climb – never a good beginning.

nuMBer 2, knOw yOur FInAnCIerS

Recognize early in the process that the lenders will have specific needs – think ahead and do the preparation work for a project with a clear understanding of those needs to prevent the need to repeat simple exercises two or three times.

For example, each funder will need to undertake KYC procedures – when setting up the new company, ensure that relevant documents are placed on a web portal that each can access so that the exercise is only undertaken once by the company. If your project is looking to utilize funds from international development banks then ensure that environmental surveys and monitoring procedures that you set up are set up at the outset in a manner that will mean that they comply with the World-Bank requirements.

A lesser standard will be a false economy in terms of cost and time at the end of the day.

Recognise that if equity is to be injected into the project pro rata with commercial lenders then credit rating of the equity provider will be a key factor. If a bank LC is required, start working on obtaining this early on in the project development. Do not wait until two days prior to financial close when you have finally read the CP schedule to the borrowing and discovered that you need to negotiate specific forms of LC to comply with lender requirements or will have to seek unnecessary and complicated waivers for non-compliant (in terms of strict wording) LCs.

Set up accounting systems and reporting systems on day one in a manner that should satisfy the lenders and then take the time to read the information sections of the credit documentation carefully. Far too often those negotiating credit documentation spend their time arguing over materiality qualifications for covenants and events of default and skim over the reporting requirements, many of which can be exceedingly onerous on-going requirements for a project company to fulfil with limited personnel available to them, and at the same time as trying to manage a construction programme or operational facility. Remember, the reporting requirements are an on-going cost to the business.

Rarely should lenders need anything which the sponsors do not (or will not) find useful.

If large amounts of excess information and reports are being requested, a frank and open dialogue should be had to ensure that the ‘bank’s standard form’ has not overtaken

‘common sense’ on the project.

nuMBer 3, MAke The TOuGh DeCISIOnS eArly

Tempting though it may be if contracting parties are associated companies, don’t try to make the construction or operating contracts too onerous on the project company. A construction contract or operating contract that has not been properly negotiated and prepared (as if between two truly third parties) will not pass muster with financiers who will seek to renegotiate a clearly one-sided contract – often resulting in a far tougher contract than might otherwise have sufficed.

The washing of a sponsor group’s dirty washing in public is never an edifying experience and again leads to wariness throughout the project which is not conducive to long-term successful projects.

Although each project is individual to the needs of the parties and the associated geographies/market needs, there is a clear risk allocation in projects within each relevant sector which is broadly accepted within that sector. Sometimes, the differences between sectors have no logical reason to exist beyond market precedent. However, it is important that parties know what the generally accepted allocation is and highlight to other participants in the project where the risk allocation in this particular case differs from that norm. If this is done, together with a clear explanation as to why such an approach has been adopted then such a stance will be far more likely to gain acceptance and speedy resolution than where such issues have been ‘negotiated’ behind closed doors and presented to others as a fait accompli.

Sponsors should also clarify up-front the type and amount of completion support is required. Too often, this all important element is fudged at heads of terms and term sheet stages only to become the make or break point at the eleventh hour of negotiation when all parties have expended too much time and effort into the process to be capable of either backing out or backing down. Issues such as amount, principal or interest only, default payment versus on-going payments, required completion tests (timing, parameters, etc.) should be worked out in detail up-front in order to prevent major hiccoughs at a later stage. I have just recently been working on a project that has been shelved after 18 months of work as a result of a fundamental misunderstanding of the nature and amount of completions support being offered.

nuMBer 4, ThInk ABOuT The FuTure

When entering into a long-term financed position, parties should always have one eye on the future and on how the project itself and also the project economics can be improved.

In this regard, thought should be given to whether or not a differential margin should be required p and post- operations and/or whether the credit facility is easily re-financeable once the riskier (and therefore inherently more expensive) part of the project has passed.

In this regard, the hedging arrangements put in on place day one will potentially have a large impact on the economics of a refinancing case and the ability to negotiate flexible hedging arrangements with embedded break provisions may (although initially more expensive to procure) prove to be a better long-term economic investment.

This is an issue not just for the private sector sponsors of a project. The UK government has often lamented the fact in public that its PPP sector has not evolved into a conglomeration of companies holding many and various PPP assets and taking a corporate holistic view across its portfolio, but has rather retained the structure of many small single-purpose project vehicles undertaking their own small projects.

This seems an odd lament indeed when the documentation which has been fought over and defended to the hilt, often against all rational instincts of those actually carrying out the projects, provides such barriers to any other structure ever being adopted. The requirement for 100 per cent interest rate hedging, the requirement for all re-financings and change-of-control arrangements to obtain prior approval, the need for major contractor changes to be approved, etc. – all seem to lead inexorably to fossilization of the project and an inability, or at least a major disincentive, for the private sector to drive further values and structures out of the projects – what a pity that such innovation and creativity have been stifled at the altar of standardization.