Synopsis of In3’s Completion Assurance Program™ (CAP)

Dear Project Developer,

Here is a synopsis of In3’s unique structure for funding middle-market projects or portfolios totaling $25 million or more ($50m+ preferred), with fewer restrictions than the traditional route.

Key features:

• Projects can be located almost anywhere, in any sector, and at virtually any stage of readiness:
• Mid-market projects usually involve building something.  We cannot fund in a lump sum, so that eliminates M&A (rolling up multiple projects or simple acquisitions without value-added work).
• We can fund in any major currency, anywhere we are allowed to work per the US State Department (countries), up to 100% of the required capital with no interest expense as a Joint Venture equity partnership. The exact equity split will be negotiated following our due diligence.
• In3 CAP, our flagship Investment Program, is based on the ability of the Project Developer/Sponsor to facilitate a financial “Completion Assurance” Guarantee (CAG), or cash surety deposit, which we use mainly to screen out fraud.
• In return, our private (family office) partner covers the costs of any remaining development work as well as costs of building and commissioning your project without up-front fees nor our need for control. You retain majority voting rights.

Generally, once the Project reaches commercial operation date (just before starting to generate revenue), the guarantee goes away – it is allowed to expire or is returned.  Our newest option is simply a cash surety deposit of 25%-35% of total funding on a short-term basis (compare to Standby Letters of Credit), although cash is not required.  

A CAG is often backed by non-cash assets or a balance sheet showing financial depth, not cash.  However, when cash is within reach, it affords the most leverage (3x-4x) and the surety deposit is returned in lump sum upon the final draw of invested proceeds, enabling more rapid scale-up for developers funding portfolios.  

Completion security protects both parties’ interests, and is similar to a completion bond or performance bond provided by contractors, but is also distinct as it is NOT an insurance product.

We finance projects at these advantageous terms:

• Flexible and competitive financial terms:
  • CAP funding can be used to cover costs of any remaining Project Development ahead of construction – projects do not need to be entirely shovel-ready
  • Up to 100% of required funding without having to give up control.  Investor seeks equity, a carried interest, not a majority of the voting rights.
    • We don’t charge interest for the balance of funding (equity is only part of the capital we deliver) because interest rates remain high.  Higher interest rates can be problematic for new construction projects as interest expense can really chew up operational profits while the investment “clock is ticking,” delaying net cash flows.  Less profitable projects feel the most pain from this (interest can become quite expensive), so instead, we fund up to 100% but without any loan interest at all, using a JV-like structure that offers more flexible repayment terms. Equity only for full-leverage financing is simply better for our clients.
    • Project “capital stack” does not include senior debt or encumber Project assets with a lien.  This means that another party, such as a guarantor (what we call a “sponsor”) or senior lender, especially with projects above $50m, can use a senior lien to secure their position.  Know more about leveraging debt
  • Guarantees must be in US$ or Euros (or GBP/£), however project funding can be in a different currency and will not require that the client pay for FX risk coverage
  • Risk profile:  Operational/performance, technical, developer execution and credit risk taken on by the investor.  Be sure to demonstrate low to zero commercial risk, as well as through a partial guarantee that eliminates some of the risk of non-completion.
• Carried interest is determined upon completion of due diligence, calculated based on:
  • Difference between the amount of Security and total Project funding, if any
  • If not cash, then the guarantee-issuing bank’s Credit Rating and quality of guarantee instrument
  • Project overall (unlevered) IRR.
  • Note that cash surety deposits are about twice as valuable as a Standby LC (SbLC) when determining the equity split — for comparison, a cash deposit of ~25-35% equates with roughly 50-70% SbLC face value.
• Draw schedule:  monthly, with a preference for consistent amounts each month.  Greater coverage (CAG or cash) equates with a faster draw schedule. Minimum CAG maturity of one year.  Cash surety is returned on the final drawdown of invested capital.

This structure significantly reduces the traditional administrative complexity, uncertainty and due diligence costs (and associated delays in reaching closing) that are common in most project finance.

How We Work 

Most widely-used guarantee type is a Standby Letter of Credit (SbLC introduction or jump to easy-to-follow steps, or Tips for sourcing an SbLC).   Cash surety deposit is a close second, and gaining popularity.   Compare these two popular pathways to CAP Security

Summary of the steps

1. Contact In3’s deal flow manager or, if you are certain your project fits our criteria, register here.
   • We will review the total required budget, uses of funds, proposed sources of funding and security; if SbLC, the exact wording or “verbiage” for the instrument, including the issuing bank and instrument face value.  This is the place to start if a cash deposit is not available.
     • With approval of the SbLC wording, we will ask for the involved bank officer’s RWA letter, which serves as their letter of intent.  Download templates
     • Once the guarantee wording is approved, or alternative assets identified (bond, MTN, public equities or gold), or cash surety deposit confirmed, then we will ask for the proposed monthly draw schedule.
     • Solution Center:  All options for assistance with CAP Security
   • Then the last “Essential” is an Authorization to Verify (ATV letter) with the issuing banker that they are ready to proceed.
   • Once the above steps are completed, we will request the rest of the project’s funding package (including MS Excel financials).  Formal due diligence typically takes 2-3 weeks, which if all goes well, puts a binding offer on the table for a minority equity carried interest without charging any initial fees.
2. Financial closing happens quickly once contracts are signed and upon receipt of the hardcopy instrument at our bank
3. Funding flows per draw schedule, and … project is completed, any guarantee(s) expire, or deposit returned, with project commissioned to begin operational cashflows.

Keep in mind that cash deposit can serve as an alternative to any bank-involved CAG, as can certain aforementioned asset types, namely a registered and rated Bond, Medium-term Note (MTN) or gold (with SKR), bypassing the need for an SbLC or cash.  More

If you need assistance with the guarantee, consider involving a “sponsor” or if able to meet In3’s criteria, consider hiring In3 to assist with this as a “Done For You” premium service.

Some projects — typically those structured as a Public-Private Partnership, can obtain a Sovereign Guarantee from the Ministry of Finance in countries that can issue them.  Guide to help decide which type of financial guarantee delivers the most advantages for your situation here. Or explore how much leverage can be used for the various types of CAP Security? (advanced topic with examples given).

Article that explains what problems we solve:  Four notorious problems of mid-market project finance that CAP solves.

Please revert with any questions or when you are ready to take next steps.

Best,
In3 Customer Relations
info@in3capital.net
+1.831-761-0700 Ext 1