De-risking & Credit Enhancement – Why Loan Guarantees make ALL the difference
Have you noticed that otherwise strong project finance proposals often go unfunded or take seemingly forever to reach closing with qualified investors? If so, In3 Capital may be the solution, as we offer both bridging and direct investment capital into project companies in emerging markets and developed countries using our Capital Guarantee Program — either a Bank Guarantee (BG) or Sovereign Guarantee (SG) as credit enhancement. This program is a game-changer for qualified mid-market projects.
New clients can visit our Resource Center for news of In3’s current status.
Go Slow (for a bit, at first) to Go Faster
We often hear developers say “Show us the money and we will talk about Terms & Conditions (T’s & C’s) [for the loan or investment].” That’s fine, except for one thing: we first need to make sure your project(s) actually fit our deal fundamentals, where our partners place capital based on a well-proven investment thesis. Otherwise, we could be wasting each other’s time.
It’s actually fairly simple, but may take a discussion or two (or self-study) to appreciate some of the finer points. During this time, we only ask that you keep an open mind to understand what guaranteed capital is, and how it works. Consider this preliminary phase a way to go faster, a bit later, while the first few steps (getting on the same page) are worth going slower.
Like the metaphorical (S. Covey) “sharpening the saw” — if you keep sawing with a dull blade you don’t get much done. So, unless you just want the exercise, we can offer a sharpened blade that cuts through wasted time and extra steps.
To help navigate this complexity, we define “fit” as any project or portfolio(s) of projects that upholds these four cornerstones
4 “S” Cornerstones of In3 Capital Guarantee Program
- SIZE: $25 million or more per project; if less than $25m, consider building a “pipeline” or portfolio of multiple, related projects under one facility.
- SPACE: Delivers positive impacts, ideally (or at least does no social or environmental harm) – more than 30 industries get preferential treatment. The most active sectors are utility-scale solar, waste-to-value, regenerative agriculture, housing, and LED lighting retrofits.
- STAGE: Any – does not need to be “shovel-ready” … fine if additional pre-construction development work is needed. Still, given the risk we take, the construction period must be at most 2-3 years.
- SURETY: Investment (equity and/or debt) can be covered under a loan guarantee of some sort – sovereign or bank – sent via SWIFT, equal to the amount of capital requested, for up to 100% of the project budget. This qualifies for favorable and generous terms with far less due diligence, faster, and more reliably – with greater risk tolerance and thus, certainty.
- Of course, there are often creative solutions to each of these basics, assuming a willingness to make some sort of commitment to working with us as the preferred pathway to funding. By “commitment” we just mean working in good faith to explore options (including possible loan guarantees) then selecting the one with the greatest mutual benefit.
We prefer a period of exclusivity to show that we can deliver. There are no up-front fees, so you have nothing to lose.
“We have a guaranteed customer, so why talk about risk at all?!”
Most of us prefer not to face the realities of what can go wrong. But project finance is extremely conservative and investors look not at the average case but at the worst case scenario. This is part of our job, ensuring you de-risk and present your request for funding in the best possible light. Fewer remaining risks in a funding proposal enables more attractive terms for financing, including faster and more reliable closings (what good is a polished proposal that causes investor heart palpitations?), and more flexibility in how funds get deployed.
Mitigating commercial risks with a credit-worthy, long-term customer makes great sense for any project — the business is much more likely to work out well for all stakeholders. From an investment perspective, however, it is not the most important risk — fundamental credit risk and assurance that the assets get built and commissioned on schedule are foremost in obtaining the favorable capital terms, that is also reasonably fast to secure (we offer 30-45 days from receipt of the guarantee) and flexible conditions (see s-words 1-3 above).
Another advantage of In3’s Capital Guarantee Program™ is its predictability and replicability, a rare and beautiful thing in project finance circles. This enables us to offer you the following indicative terms.
How financeable is your project? In3 services, starting with the RAIN assessment, can help you quickly answer this question as well as organize appropriate risk mitigation strategies to expedite closing.
Some examples of what we offer:
- Capital Guarantee Program™ — whether from a private source, from a government (Sovereign Guarantee, or SG), or a Bank Guarantee (BG, usually as a Standby Letter of Credit), loan guarantees are a promise by the guarantor to stand for (assume the debt obligation) of a borrower in the event of default. Some involve fees; some do not. Why obtain an SG or BG? The extra effort of obtaining a loan guarantee pays massive dividends in terms of making more affordable capital available. Projects qualify for these terms, the best you will likely find, and greatly expedite the process. Typically capital is either fast or inexpensive, but here you get both!
- Risk and readiness evaluation (called “vetting”), to prepare for investor due diligence.
- Expert Advisory Services — assistance to develop and de-risk projects to streamline financing (by the hour | tailored and bundled within a precise scope-of-work).
How does In3’s Guarantee Program work?
Whether from a bank or sovereign government, a loan guarantee is not a form of capital, but instead it (a) preserves capital and (b) does permit and enable access to capital at the most attractive rates and flexible conditions, and (c) ensures that the project company will fulfill its obligations and complete the construction of the assets.
By improving a project’s financeability and borrowing power, the terms, timing and probability of completing the finance transaction greatly improve. You can chase financing for years and not discover that the cause happens to be a minor detail (seen as a fundamental flaw in the eyes of institutional invests), and quite solvable if approached properly.
Many of the risks are embedded, and the investor knows this. Responsibility for completion of asset construction and commissioning is entirely in the hands of the company, so an instrument like a sovereign or bank guarantee can transfer those risks to another party, thus ensuring that the project company does its part.
In this sense, the loan guarantee works like a completion bond (insurance), as it is only kept in place during the construction period, typically one year, but sometimes renewed for a second year.
This is vitally important because impact project investors, whether non-profit (philanthropic), are inherently risk averse. Thus, taking the recommended steps now can make the difference — shifting from perpetually hunting for money to actually securing it on advantageous terms and conditions. More on In3’s Capital Guarantee Program™.
If you have no ability to obtain a loan guarantee, please assess how prepared is your project for investment using our fast and free Readiness Assessment. RAIN provides a “snapshot” of your readiness to receive funding (the last of 9 multiple-choice questions is about loan guarantees)… just be sure to register your results after the screen appears with your scores (hit the “Continue” button upon completion), so we can discuss your best options.
On risk insurance: Political Risk Insurance provides equity investors in any project coverage against
- (1) Expropriation,
- (2) Political Violence, and/or
- (3) Currency Inconvertibility.
Coverage is also available for regulatory risk (such as feed-in tariffs or power purchase agreements), carbon credits, etc.
Generally, loan guarantees can be used in combination with performance guarantees and completion bonds, or other methods of ensuring that projects get built and operate per the financial projections, to avoid the need for most PRI coverage.
More on In3’s project Capital Guarantee Program™
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