Advanced Search
MyIDEAS: Login to save this article or follow this journal

Risk Shifting through Nonfinancial Contracts: Effects on Loan Spreads and Capital Structure of Project Finance Deals

Contents:

Author Info

  • FRANCESCO CORIELLI
  • STEFANO GATTI
  • ALESSANDRO STEFFANONI

Abstract

We study capital structure negotiation and cost of debt financing between sponsors and lenders using a sample of more than 1,000 project finance loans worth around US$195 billion closed between 1998 and 2003. We find that lenders: (i) rely on the network of nonfinancial contracts as a mechanism to control agency costs and project risks, (ii) are reluctant to price credit more cheaply if sponsors are involved as project counterparties in the relevant contracts, and finally (iii) do not appreciate sponsor involvement as a contractual counterparty of the special purpose vehicle when determining the level of leverage. Copyright (c) 2010 The Ohio State University.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1538-4616.2010.00342.x
File Function: link to full text
Download Restriction: Access to full text is restricted to subscribers.

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Bibliographic Info

Article provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.

Volume (Year): 42 (2010)
Issue (Month): 7 (October)
Pages: 1295-1320

as in new window
Handle: RePEc:mcb:jmoncb:v:42:y:2010:i:7:p:1295-1320

Contact details of provider:
Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-2879

Related research

Keywords:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Grossman, Sanford J & Hart, Oliver, 1985. "The Cost and Benefits of Ownership: A Theory of Vertical and Lateral Integration," CEPR Discussion Papers 70, C.E.P.R. Discussion Papers.
  2. Michel A. Habib & D. Bruce Johnsen, 1999. "The Financing and Redeployment of Specific Assets," Journal of Finance, American Finance Association, vol. 54(2), pages 693-720, 04.
  3. Yener Altunbas & Blaise Gadanecz, 2003. "Developing country economic structure and the pricing of syndicated credits," BIS Working Papers 132, Bank for International Settlements.
  4. Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, 1998. "Law and Finance," Journal of Political Economy, University of Chicago Press, vol. 106(6), pages 1113-1155, December.
  5. Stefanie Kleimeier & William L. Megginson, 2000. "Are Project Finance Loans Different From Other Syndicated Credits?," Journal of Applied Corporate Finance, Morgan Stanley, vol. 13(1), pages 75-87.
  6. Chemmanur, Thomas J. & John, Kose, 1996. "Optimal Incorporation, Structure of Debt Contracts, and Limited-Recourse Project Financing," Journal of Financial Intermediation, Elsevier, vol. 5(4), pages 372-408, October.
  7. Dailami, Mansoor & Hauswald, Robert, 2003. "The emerging project bond market - covenant provisions and credit spreads," Policy Research Working Paper Series 3095, The World Bank.
  8. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
  9. Rajan, Raghuram & Winton, Andrew, 1995. " Covenants and Collateral as Incentives to Monitor," Journal of Finance, American Finance Association, vol. 50(4), pages 1113-46, September.
  10. Benjamin C. Esty, 2004. "Why Study Large Projects? An Introduction to Research on Project Finance," European Financial Management, European Financial Management Association, vol. 10(2), pages 213-224.
  11. Fama, Eugene F, 1990. "Contract Costs and Financing Decisions," The Journal of Business, University of Chicago Press, vol. 63(1), pages S71-91, January.
  12. Dailami, Mansoor & Hauswald, Robert, 2001. "Contract risks and credit spread determinants in the international project bond market," Policy Research Working Paper Series 2712, The World Bank.
  13. Richard A. Brealey & Ian A. Cooper & Michel A. Habib, 1996. "Using Project Finance To Fund Infrastructure Investments," Journal of Applied Corporate Finance, Morgan Stanley, vol. 9(3), pages 25-39.
  14. Rafael La porta & Florencio Lopez-De-Silanes & Andrei Shleifer & Robert Vishny, 2002. "Investor Protection and Corporate Valuation," Journal of Finance, American Finance Association, vol. 57(3), pages 1147-1170, 06.
  15. Lisa J. Cameron, 2000. "Limiting Buyer Discretion: Effects on Performance and Price in Long-Term Contracts," American Economic Review, American Economic Association, vol. 90(1), pages 265-281, March.
  16. Shah, Salman & Thakor, Anjan V., 1987. "Optimal capital structure and project financing," Journal of Economic Theory, Elsevier, vol. 42(2), pages 209-243, August.
  17. Stulz, ReneM. & Johnson, Herb, 1985. "An analysis of secured debt," Journal of Financial Economics, Elsevier, vol. 14(4), pages 501-521, December.
  18. Myers, Stewart C., 1977. "Determinants of corporate borrowing," Journal of Financial Economics, Elsevier, vol. 5(2), pages 147-175, November.
  19. Benjamin Esty, 2002. "Returns On Project-Financed Investments: Evolution And Managerial Implications," Journal of Applied Corporate Finance, Morgan Stanley, vol. 15(1), pages 71-86.
  20. Williamson, Oliver E, 1988. " Corporate Finance and Corporate Governance," Journal of Finance, American Finance Association, vol. 43(3), pages 567-91, July.
  21. Smith, Clifford Jr. & Warner, Jerold B., 1979. "On financial contracting : An analysis of bond covenants," Journal of Financial Economics, Elsevier, vol. 7(2), pages 117-161, June.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Borgonovo, Emanuele & Gatti, Stefano, 2013. "Risk analysis with contractual default. Does covenant breach matter?," European Journal of Operational Research, Elsevier, vol. 230(2), pages 431-443.
  2. João Pinto & Mário Coutinho dos Santos, 2014. "Corporate Financing Choices after the 2007-2008 Financial Crisis," Working Papers de Economia (Economics Working Papers) 03, Faculdade de Economia e Gestão, Universidade Católica Portuguesa (Porto).
  3. João Pinto, 2014. "What is Project Finance?," Working Papers de Economia (Economics Working Papers) 01, Faculdade de Economia e Gestão, Universidade Católica Portuguesa (Porto).
  4. João Pinto & Manuel Marques & William Megginson, 2013. "A Comparative Analysis Of Ex Ante Credit Spreads: Structured Finance Versus Straight Debt Finance," Working Papers de Economia (Economics Working Papers) 05, Faculdade de Economia e Gestão, Universidade Católica Portuguesa (Porto).
  5. Li, Jing & Sabbaghi, Navid, 2013. "Decision analysis on CDM project investments," International Journal of Production Economics, Elsevier, vol. 146(1), pages 269-280.
  6. Hainz, Christa & Kleimeier, Stefanie, 2012. "Political risk, project finance, and the participation of development banks in syndicated lending," Journal of Financial Intermediation, Elsevier, vol. 21(2), pages 287-314.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:mcb:jmoncb:v:42:y:2010:i:7:p:1295-1320. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing) or (Christopher F. Baum).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.