Optimal Financial and Contractual Structure for Building Infrastructure using Limited-Recourse Project Financing
72 Pages Posted: 17 Jun 2016 Last revised: 24 Sep 2018
Date Written: December 1, 2017
We model a sponsoring company and a host government contracting to form a project company to build up and operate an infrastructure project. The government and sponsor contribute part of the investment required for project build-up, with the remaining investment provided as a limited-recourse loan by a banking consortium. Each party takes equity stakes in the project company and provides costly non-contractible inputs which affect the project's success probability. We solve for the optimal capital and ownership structure of the project company, cost of debt, the choice between build-operate-own (BOO) and build-operate-transfer (BOT) contracts, and the optimality of performance guarantees.
Keywords: limited-recourse project financing, infrastructure finance, build-operate-transfer, build-operate-own, performance guarantees.
JEL Classification: G31, G32, G21, M41
Suggested Citation: Suggested Citation