PT - JOURNAL ARTICLE AU - Arsalan Ali Farooquee TI - Design, Structure, and Risk Assessment of a Pre-Securitization Financing Facility for Rooftop Solar Projects in India AID - 10.3905/jsf.2017.23.1.091 DP - 2017 Apr 30 TA - The Journal of Structured Finance PG - 91--97 VI - 23 IP - 1 4099 - https://pm-research.com/content/23/1/91.short 4100 - https://pm-research.com/content/23/1/91.full AB - This article discusses the design, structure and risk assessment of a pre-securitization financing facility for industrial and commercial rooftop solar projects in India. Such a facility will aggregate Power Purchase Agreements (PPA) and syndicate loans, thereby serving as an investment vehicle to attract new class of investors into the rooftop solar segment, and will subsequently enable refinancing via securitization. The credit risk of the aggregation facility is assessed using a comprehensive project finance model and simulation of debt service coverage ratios (DSCR), volatility of DSCR, distance-to-default, frequency and quantum of soft defaults, probability of hard default, and loss given default. The structure of the aggregation facility is discussed w.r.t the legal entity, capital structure, size and draw-downs from debt service reserve account, the number of tranches in the financing facility and returns on fixed income tranches. The Copula function is used for the assessment of securitized tranches. The reduction in the weighted cost of debt is realized both during aggregation phase as well as during securitization. This reduction is driven by the combined effect of the reduction in credit risk due to aggregation, reduction in agency and transaction cost, and the ability of the mandated financial intermediary in the syndicate to identify high quality and underpriced assets in the origination market.TOPICS: Project finance, credit risk management, emerging, statistical methods