On project finance and the first road concession in Portugal

In broad sense, Project Financing1 as a mean of financing large scale infrastructural projects worldwide has had a steady growth in popularity for the last 20 years. This growth has been relatively unscathed from most economic cycles. However in the wake of the 2007 systemic Financial Crisis, Project Financing was also in trouble. The liquidity freeze and credit crunch that ensued affected all parties involved. Traditional Lenders, of this type of financial instrument, locked-in long-term contractual obligations, were severely hit with scarcity of funding compounded by rapidly increasing cost of funding. All the while, Banks were “rescued” by the concerted actions of Central Banks and other Multi-Lateral Agencies around the world but at the same time “stressed” by upcoming regulatory effort (Basel Committee). This impact resulted in specific changes to this type of long-term financing. Changes such as Commercial Banks’ increased risk aversion; pricing increase and maturities decrease of credit facilities; enforcement of Market Disruption Event clauses; partial responsibility for project risk by Multilateral Agencies; and adoption of utility-like availability payments in other industrial sectors such as transportation and even social infrastructure. To the extent possible, this report is then divided in three parts. First, it begins with a more instructional part, touching academic literature (theory) and giving the Banks perspective (practice), but mostly as an overview of Project Finance for awareness’ sake. The renowned Harvard Business School professor – Benjamin Esty, states2 that Project Finance is a “relatively unexplored territory for both empirical and theoretical research” which means that academic research efforts are lagging the practice of Project Finance. Second, the report presents a practical case regarding the first Road Concession in Portugal in 1998 ending with the lessons learned 10 years after Financial Close. Lastly, the report concludes with the analysis of the current trends and changes to the industry post Financial Crisis of the late 2000’s. To achieve this I’ll reference relevant papers, books on the subject, online articles and my own experience in the Project Finance Department at a major Portuguese Investment Bank. Regarding the latter, with the signing of a confidentiality agreement, I’m duly omitting sensitive and proprietary bank information.

Infrastructure Finance and Industrial Takeoff in England

That financial matters did not constrain industrial takeoff in the UK is generally accepted in the historical literature; in contrast, contemporary empirical analyses have found evidence that financial development can be a causal determinant of economic growth. We look to reconcile these findings by concentrating on a particular aspect of industrialising UK where inefficiencies in finance could have had bite: The finance of physical infrastructures. We document the historical record and develop the importance of spatial disaggregation and spillovers in both technological and financial development. We develop a simple model that captures the nature of infrastructure finance within a theory of endogenous growth where financial costs are endogenous. We argue that the conception of the finance-growth nexus as a largely static, aggregative phenomenon misses out a good deal of complexity and we relate that complexity to a number of implications for regulation of both financial systems and the emergence of infrastructures

Finance and Balanced Growth

The Uzawa (1961) theorem applied to finance and growthsuggests that a long-run positive correlation between financial efficiency and depth is only present when variations in the extent of access to financial services are considered. Improvements in financial efficiency can lead to new capital augmenting technologies along the balanced path, but only improvements in financial efficiency directed towards labor can change the rate of growth in the long-run. These findings suggest ways to understand some of the more nuanced relationships between finance and growth observed in the data and point in a number of directions for future research.

The Market for "Rough Diamonds": Information, Finance and Wage Inequality

During the past four decades both between and within group wage inequality increased significantly in the US. I provide a microfounded justification for this pattern, by introducing private employer learning in a model of signaling with credit constraints. In particular, I show that when financial constraints relax, talented individuals can acquire education and leave the uneducated pool, this decreases unskilled inexperienced wages and boosts wage inequality. This explanation is consistent with US data from 1970 to 1997, indicating that the rise of the skill and the experience premium coincides with a fall in unskilled-inexperienced wages, while at the same time skilled or experienced wages do not change much. The model accounts for: (i) the increase in the skill premium despite the growing supply of skills; (ii) the understudied aspect of rising inequality related to the increase in the experience premium; (iii) the sharp growth of the skill premium for inexperienced workers and its moderate expansion for the experienced ones; (iv) the puzzling coexistence of increasing experience premium within the group of unskilled workers and its stable pattern among the skilled ones. The results hold under various robustness checks and provide some interesting policy implications about the potential conflict between inequality of opportunity and substantial economic inequality, as well as the role of minimum wage policy in determining the equilibrium wage inequality.

Applications of stochastic analysis in finance and statistical inference

First: A continuous-time version of Kyle's model (Kyle 1985), known as the Back's model (Back 1992), of asset pricing with asymmetric information, is studied. A larger class of price processes and of noise traders' processes are studied. The price process, as in Kyle's model, is allowed to depend on the path of the market order. The process of the noise traders' is an inhomogeneous Lévy process. Solutions are found by the Hamilton-Jacobi-Bellman equations. With the insider being risk-neutral, the price pressure is constant, and there is no equilibirium in the presence of jumps. If the insider is risk-averse, there is no equilibirium in the presence of either jumps or drifts. Also, it is analised when the release time is unknown. A general relation is established between the problem of finding an equilibrium and of enlargement of filtrations. Random announcement time is random is also considered. In such a case the market is not fully efficient and there exists equilibrium if the sensitivity of prices with respect to the global demand is time decreasing according with the distribution of the random time. Second: Power variations. it is considered, the asymptotic behavior of the power variation of processes of the form _integral_0^t u(s-)dS(s), where S_ is an alpha-stable process with index of stability 0&alpha&2 and the integral is an Itô integral. Stable convergence of corresponding fluctuations is established. These results provide statistical tools to infer the process u from discrete observations. Third: A bond market is studied where short rates r(t) evolve as an integral of g(t-s)sigma(s) with respect to W(ds), where g and sigma are deterministic and W is the stochastic Wiener measure. Processes of this type are particular cases of ambit processes. These processes are in general not of the semimartingale kind.

City of Center Point, Independent Auditor's Reports, Basic Financial Statements and Supplementary Information, Schedule of Findings, June 30, 2004

City Audit Report

Selected Information About County Jails and Adult Detention Facilities in Iowa, 2003

During the 2002 session of the Iowa General Assembly, Senate File 2278 was enacted, establishing a new Section 356.36A within the Iowa Code. Subsequently, House File 2623 was enacted, which served to make a minor amendment to Senate File 2278. The Governor subsequently signed the amended legislation into law. The final version of the new Section 356.36A required that the Iowa Department of Human Rights, Division of Criminal and Juvenile Justice Planning and Statistical Analysis Center (CJJP) prepare a report for the Legislature “analyzing the confinement and detention needs of jails and facilities established pursuant to chapters 356 and 356A.

City of Center Point, Independent Auditor's Reports, Financial Statements and Supplemental Information, Schedule of Findings, June 30, 2003

City Audit Report

City of Jesup, Independent Auditor's Reports, Basic Financial Statements and Supplementary Information, Schedule of Findings, June 30, 2004

City Audit Report

City of West Branch, Independent Auditor's Reports Basic Financial Statements and Supplementary Information Schedule of Findings, June 30, 2004

City Audit Report

City of Clemons, Independent Auditor's Reports, Financial Statements and Supplemental Information, Schedule of Findings, June 30, 2003

City Audit Report

City of Shellsburg, Independent Auditor's Reports, Basic Financial Statements and Supplementary Information, Schedule of Findings and Questioned Costs, June 30, 2004

City Audit Report

City of Knoxville, Independent Auditor's Reports, Basic Financial Statements and Supplementary Information, Schedule of Findings, June 30, 2004

City Audit Report