“Subnational Infrastructure Finance in the Emerging Markets:
A Financial Guarantee Perspective”
by
Thomas H. Cochran, CivilCredit Advisors LLC,
with
Anthony Pellegrini, Centennial Group, David Stevens,
Richard Torkelson, and David White
Chapter 10 in the newly published The Handbook of Municipal Bonds, edited by Sylvan G. Feldstein and Frank J. Fabozzi. Published by John Wiley & Sons, Inc. (The Frank J. Fabozzi Series). Copyright © 2008 by John Wiley & Sons, Inc. All rights reserved.
The closely related fields of public project finance and subnational infra-structure finance are developing rapidly in the world’s emerging market economies for a variety of reasons beyond the rapidly increasing demand for infrastructure driven by high population and GDP growth rates. Two other key drivers of this phenomenon are:
1. The rapid growth and improving quality of local credit and capital markets in the developing world as local contractual savings pools are formed and grow at often explosive rates, and economic and financial institution reforms stabilize local economies; and
2. The “devolution revolution” which is pushing responsibility for infra¬structure finance down from central governments to lower levels of government in many countries of Latin America, Central and Eastern Europe, Africa, and Asia. Even in countries such as Chile which have chosen to stay quite centralized governmentally, responsibility for infra¬structure finance has been shifted outward to private sector partners through various public-private partnership arrangements such as concessions.
This 31 page chapter discusses the basic approach being taken by monoline financial guaranty insurers and other guarantors which are beginning to apply time-tested public finance credit and structuring principles in some of the better-developed emerging market countries, which have become the new frontiers of essential public infrastructure finance.
The main body of the Chapter contributed by Cochran, et al describes how to structure financially sustainable subnational infrastructure credits of various kinds in developing countries including:
•
General obligation, unlimited tax debt,
General obligation, unlimited tax debt,•Limited tax, general obligation debt,
Limited tax, general obligation debt,•Lease obligations and other forms of debt carrying appropriation risk,
Lease obligations and other forms of debt carrying appropriation risk,•Enterprise obligations of essential public service utilities, using various approaches ranging from standard revenue bonds to various forms of public-private risk sharing such as Public Finance Initiatives (PFI), Public-Private Partnerships (PPP) and privatizations using concession agreements, and
Enterprise obligations of essential public service utilities, using various approaches ranging from standard revenue bonds to various forms of public-private risk sharing such as Public Finance Initiatives (PFI), Public-Private Partnerships (PPP) and privatizations using concession agreements, and•Structured financing of multiple subnational credits
Structured financing of multiple subnational creditsExcerpted with permission of the publisher John Wiley & Sons, Inc. from The Handbook of Municipal Bonds. Copyright (c) 2008 by John Wiley & Sons, Inc.
The Handbook of Municipal Bonds includes 73 chapters and 21 case studies, as well as two Appendices: “A Pictorial History of Municipal Bonds,” and a Glossary of Terms. This 1330 page volume is now available at all bookstores, online booksellers and from the Wiley web site at www.wiley.com, or call 1-800-225-5945.
