In addition to providing traditional project and vendor financing, Graco Mortgage Corp. (GMC) has implemented a unique and innovative project financing model. The primary application of the financing model is for the development of alternative energy projects. However, the model can be easily adapted to other industries and municipal infrastructure projects.
Three things are needed to qualify a project for the financing:
1. The project must require financing in the amount of at least $1,000,000.
2. The project must be able to generate a cash stream sufficient to amortize the amount financed over the term of the loan.
3. A beneficiary of the project (e.g. an off-take purchaser) with an investment-grade credit rating must give an assurance for the required portion of the cash stream from the project.
Traditional project financing requires proven technologies, collateralized assets, significant equity infusions, and a developer with an acceptable credit. Few developers using a design, build, own, and operate model can meet the equity and credit requirements for traditional project financing, even for economically viable projects.
Due to capital and credit requirements established by traditional lenders, developers that do qualify for financing are often limited to fewer projects than they are capable of doing, especially with emerging technologies.
Graco Mortgage's financing model is demand-driven. By leveraging the operational needs of an off-take purchaser with the financing needs of a project developer, we are able to provide up to 100% financing and ensure viable projects get done. Using our model, a project developer can fund projects by obtaining an assurance from an off-take purchaser with an investment-grade credit rating. The assurance is given based upon remedies, incentives and other contractual protections offered by the developer to the off-take purchaser.
The benefits of this association are realized by both parties. The developer gets a funded project, and the provider of the assurance gets added value from the project. Additionally, the developer has not limited its capacity to do additional projects, and the provider of the assurance has improved its position in the project by only allowing the use of its investment-grade credit rating; not by providing cash. This model was created specifically to finance new technologies.
