馃攳
Bullet, Balloon, and Mini Perm Repayments | Pivotal180 - YouTube
Channel: Pivotal180
[3]
you understand now why DSCR sculpted
[8]
repayments are the most common form of
[10]
repayment structure but there are a few
[12]
others that are worth discussing let's
[14]
start with the bullet repayment
[16]
structure this is where the borrower
[19]
only pays interest throughout the term
[21]
of the loan but there are no principal
[23]
repayments until maturity when the whole
[26]
amount needs to be paid off at once now
[29]
as you can imagine this isn't very
[31]
common for project finance because it it
[33]
just wouldn't be workable project cash
[36]
flows tend to be very stable over time
[39]
because of all of those contracts so
[41]
it's hard to imagine a situation in
[43]
which a typical project could ever
[45]
generate an enough cash flow in that
[48]
final debt repayment period to pay off a
[51]
large debt facility that hadn't been
[53]
slowly amortized over time and remember
[57]
project finance loans are non-recourse
[59]
so if the project needs more money to
[61]
cover that final bullet payment the
[64]
owners don't have any obligation to do
[66]
so even if the owners are Bill Gates and
[70]
the Queen of England who could certainly
[72]
afford to do so
[73]
so a bullet loan maturity could never be
[77]
paid off with cash flow and it would
[79]
almost certainly need to be refinanced
[82]
with another loan and thanks to want to
[85]
take the refinancing risk they'd much
[87]
rather get their capital back every
[89]
quarter or every six months slow and
[92]
steady
[93]
an alternative repayment method to the
[96]
bullet is the balloon repayment where
[100]
instead of just paying the interest we
[101]
also pay some principal before the
[104]
maturity date of the loan this slightly
[107]
improves the position of the lenders
[109]
over our bullet repayment structure but
[112]
it still sounds pretty unfair for the
[114]
Landers and has a similar issue to the
[116]
bullet repayments what may surprise you
[119]
is this is actually a common structure
[122]
let me give you an example let's say we
[125]
have a 20-year project with 18 years of
[128]
debt service and do you see a sculptor
[131]
repayments the principal is repaying the
[134]
loan balance over time based on the
[137]
expect
[137]
kad's of 18 years the challenges in many
[142]
places lenders can't lend you money for
[144]
18 years instead they may actually
[147]
provide you with a loan of six years but
[150]
with an assumption you'll be able to
[152]
refinance that loan in year 6 and year
[154]
12 to get a total of eighteen years of
[157]
debt service
[158]
wait hidden what what kind of terms
[162]
would you even assume when you're just
[165]
guessing about a loan that's not going
[167]
to be provided for another six or twelve
[169]
years into the into the future at market
[172]
rates we can't possibly know today yeah
[178]
pretty much
[179]
on the same terms as the initial loan or
[182]
at least on terms of they're guessing
[184]
now for twelve years in the future it's
[188]
a wild guess I know and even if you
[193]
think you haven't heard of this you may
[196]
have it's called a mini poem and okay
[200]
there is some logic to it being an
[203]
eighteen year loan has 18 years of cash
[206]
flow to repay the loan so we'll have a
[209]
higher debt size than a six year loan
[211]
and more debt equals higher returns the
[216]
project likely also has less risk once
[219]
it's been operating for a few years and
[221]
will have a history of operations so the
[224]
cash flows may be regarded as more
[226]
certain but who knows what the marker
[230]
will be like then so you mean to say
[232]
that the banks are offering me three
[234]
loans now well it is really three loans
[237]
and the banks are also taking the risk
[240]
that the project can't be refinanced
[242]
with a new loan because of a can't there
[244]
won't be enough money sitting in the
[246]
project to pay them back the banks will
[249]
commit now to the first loan with this
[251]
risk and they will want the option to
[254]
participate in the new loan but they
[256]
won't promise to refinance it at the
[258]
guessed terms the banks will also put in
[263]
some protection and maybe be a bit
[265]
conservative and typically if you can't
[268]
refinance the loan there may be a
[270]
provision by the lens that
[271]
take 100% of the cash flow of the
[274]
project until either the debt is repaid
[276]
or it's been lowered to a level such
[279]
that they can refinance and it's also
[282]
risk to equity if you can't refinance
[284]
the loan other the banks take 100% of
[287]
the cash flow or you may even default
[290]
and have the bank's foreclose on you and
[292]
own the project so many perms are a
[296]
common structure given lenders can't
[298]
always lend you money in reality for 30
[300]
years so it may be the only option but
[303]
they're kind of scary too
Most Recent Videos:
You can go back to the homepage right here: Homepage