0. Saskatchewan Chamber of Commerce P3 Summit
Innovation in Financing Infrastructure Projects
September 9, 2014
presented by Aon Construction and Infrastructure Services

1. 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

2. Canadian P3 Success Factors
Strong and Steady P3 Pipeline
Mature Market with 214 projects in various stages (completed, in operation, under construction, open RFP, open RFQ, etc.) source: C2P3 August 2014
No one model fits all:
Delivery models include BF / DBF / BFM / DBFM / DBFOM
P3 market is broad and deep in the players it attracts
Risks allocated to the party best suited to take on the risk resulting in VFM
Payments made based on performance resulting in on-time & within budget
Continuous P3 financing innovation over the years

3. Factors Fueling Innovation in P3 Financing
Credit and liquidity Crisis
Competition within the Financial Markets
Introduction of European Lenders
Size of Transaction

4. 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

5. 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

6. 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)
Long Term Bank Financing (European Bank Mini Perm)

7. Typical Credit Provisions between Lenders & Project Co
Construction Period
Operating 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
Subguard (Contractor Default Insurance)
Surety on Demand Bond (recent)
Letter of Credit worth 50% of the next year’s Maintenance Payment + [average annual lifecycle payment]
Parental Company Guarantee worth 150% % of the next year’s Maintenance Payment + [average annual lifecycle payment]
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
Leverage
5% to 8% Equity (A rated)
10-25% Equity (BBB rated)
3% to 8% Equity (A rated)
DSRA
6 months
Min. DSCR
1.15x – 1.42x

8. 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)

9. 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.

10. 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)

11. Contacts
Michael Sali, B.Admin., CAIB | Vice President Construction Services Group | Surety 2103 – 11th Avenue, Suite 800 | Regina, Saskatchewan S4P 3Z8 t | m | f | 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 | m | aon.ca Jim Cahill | Senior Vice President Aon Risk Solutions | Construction Services Group 20 Bay Street | Toronto, ON M5J 2N9 t | m | aon.ca