In virtually every part of the world, major infrastructure projects are planned or underway to stimulate economic development and accommodate the needs of shifting and expanding populations. These projects come with an array of risks and exposures.
Marsh's Infrastructure Practice offers insurance solutions for global infrastructure construction projects. The group is comprised of financial and risk management professionals with experience in insurance, treasury, financial markets, enterprise risk management, and project finance consulting services. Our primary focus is global infrastructure construction projects including power plants, roads, bridges, ports and airports.
Working with our clients, we develop insurance-based project finance solutions to complement construction insurance and help them improve the overall cost of project financing. These services and solutions include:
Construction Insurance Expertise - Traditional or "wrap up" insurance programs for the owner, developer and/or contractor. These programs include builders' risk, liquidated damages; delay and start-up; third party liability; professional indemnity; performance bonds; and environmental liability.
Power Project Risk and Finance Consulting Services - Developing a project to leverage financing with limited and/or non-recourse debt requires a thorough evaluation of the risk identification and allocation processes. Project participants have their own economic interests to satisfy, and those interests may not be aligned with other participants. In addition, potential conflicts can arise which may impede the project development process and adversely impact cash flow.
Our specialists may recommend:
- Contractual mechanisms (liquidated damages, deductible sharing, variance of off take contract maturity, tolling agreements) that transfer liability to contractors, customers and suppliers
- Robust audit and compliance programs
- Contingency, disaster and business continuity planning or
- Insurance and/or other forms of financial hedging (derivatives, commodity hedges, balance sheet provisions)
- Marsh brings together our expertise in power, technology, contract review, project finance and holistic risk management to team with a client's internal operational and financial experts at the developmental stage of a project. Together, we can structure a comprehensive responsive and credit-enhancing solution that enables them to negotiate the best financial deal
Project Finance Tool Box
Project financing should be tailored to satisfy the requirements of the parties that will ultimately bear the risk: the owner (via the equity investment) and the lender.
To do this, a project must secure credit enhancement through a credit-worthy third party which assumes responsibility on a contractual basis to:
- Remedy specific losses if they occur
- Rectify deficient contractual performance or
- Makes good in the event other potential unforeseen events occur
- Marsh has a number of finance products and can work with clients to develop a tailored solution
Consolidated Project Insurance ("CPI")
This insurance has been designed specifically to address lenders' concerns and to achieve economies of scale via an owner-controlled wrap-up program.
CPI provides a broad response to the physical and non-physical risks outside of the owners' control, including completion and performance risks. The trigger for the coverage is the actual delay. CPI provides an 'effective' debt service response, forming a source of contingent capital.
CPI addresses the three essential criteria of any construction project:
- On-time completion
- Adherence to budget and
- Built to specifications
Confidential Project Credit Rating Process
We work with clients to obtain a project credit rating using contingent and capital insurance programs.
Financial benefits may include:
- Lower development costs
- Reduced cost of debt service
- Access to longer-term debt
- Increased sources of capital
- Enhanced leverage opportunity and
- Facilitation of off-balance-sheet financing
Synthetic Equity
A limited supply of "contingent equity" is now available. Analysis of cash flows, business models and stress testing must undertaken by a reputable independent third party, such as Oliver Wyman.
Examples of synthetic equity include:
- Revenue guarantee
- Power price protection
- Debt service coverage ratio guarantee and
- Finite-based commodity hedges
Alternative Collateral Transaction (ACT)
It may be policy for a company to operate projects on a non-recourse basis. Subsidiaries are required to provide contingent collateral (e.g. letter of credit, bid bond, performance bond, etc.) from the parent which is then marked up against their bank lines of credit.
A parent company may have significant outstanding contingent liabilities at any one time. This diminishes the funds that the parent can draw down under the facility for new investment opportunities. Marsh has several alternative collateral sources that can be tailored to meet our clients needs.
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