The XYZ Pension Fund Resource-Constrained Case Assignment

The XYZ Pension Fund Resource-Constrained Case Assignment

The XYZ Pension Fund is resource-constrained and has only $8,000,000 available for co-investment in an infrastructure asset, and must show its Board of Trustees that it has selected the most potentially profitable investments. It is being offered 6 alternatives, each of which has reached construction completion, and with 25 years’ concession period remaining. These are:

Project type	Financed by	Gross Investment required	Net Present Value $	Projected IRR %
Single toll road	Bank debt	$1m	80,000	13.9
Large general Hospital	Bond	$4m	430,000	14.4
Metro-system expansion	Bank debt	$3m	250,000	16.0
Portfolio of PFI schools	Bank debt	$2m	230,000	14.1
Bridge River crossing	Bank debt	$2m	210,000	16.1
Skyscraper	Bond	$2m	190,000	15.7

 

You are the projects’ financial advisor retained by the Trustees. Advise them (explaining your reasons);

Now consider a significant new PPP project (financed wholly by the private sector) where for some reason construction completion is delayed. Critically analyze and describe the consequences for the “D&B”/” Tier 1” Contractor, of the following situations:

a time overrun extending past the projected Completion Date

what the “penalties” might be on the [Tier 1] Contractor, and importantly also explain why “penalties” is written here in quotes; and

which parties might seek remedies and apply or enforce these “penalties” at each stage in a progressive delay;

giving an indication of how large they might be and why; and demonstrate how this would be calculated and applied.

 

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