In the previous session, we analyzed the different methods that creditor can set up. You know how to amortize a project finance loan. One of the main conclusions we reached is that traditional methods to amortize a loan. The constant principle, and the constant installment are not particularly suitable for project finance, because the source of repayment is, very frequently not completely predictable. So, we said, in the previous section, that typically banks agree with sponsors. To introduce some form of flexibility you know, to adapt in a better way, the payment of the loan, to the industrial performance of the SPV. And we introduce two basic alternatives. The first one, was the tailor made repayment schedule, and the second one was the dedicated percentage. In this session, I want to briefly explain you what is that in quantitative terms the meaning of the two and provide you with some sketch examples. That are simplified but are not particularly far away from what happens in real life. Let's assume, let's start with the first kind of example. So, the tailor made approach. Let's assume that you have arrived at the end of the construction phase, and the total amount of loan to be repaid is an amount of 300. Let's also assume that the amount that will be calculated in terms of interest. Is calculated at a fixed interest rate of 6%. Then, we assume that banks have added a quick look at the performance of the project, before the project starts, in the first four years, because banks wants to really be paid in four years time. And, we have seen that typically the project as ramp up period where cash flows are particularly scarce at the beginning and tend instead to increase as long as time passes. Banks understand that then, it is preferable to keep the payment a little bit lower in the beginning. For increasing it, as long as time goes on. For this reason, rather than assuming the most simplified form, 25% the first year, 25, 25, and 25. The so-called cost and principle. We assume and we agree that the SPV we repay 18% of the principle at the end of year one, 24% at the end of year two, 28% at the end of year three and 30% at the end of year four. You can appreciate that the sum of the four percentages return 100% at the end of year four meaning that the principle has been completely repaid back in year number four. Now we can apply these four percentages, a 10%, 24% in year two, 28% in year three, 30% in year four, to the outstanding amount at the end of your zero, beginning in year one. So that we can get immediately the principle amount that will be repaid. For example in the first year, 18% time 300 returns you 54. In the second year, 24% times 300 returns you 72. And let's go on in the same fashion 84 in year three, 90 at the end of year four, and at the end of the day you have completed your repayment of your loan at the end of year four. You can appreciate indeed that the loan has been completely repaid, because at the end of year one, the loan will amount to 300 minus 54, 246. In year number two, to 174, 246 minus 72. And going on in this way, at the end of year 4, the loan has been completely amortized. Now let's calculate the interest. Interest is always calculated on the outstanding amount referred to the previous period. So, for year number one, you have 300 times 6%, or an amount of 18. In the second area, we'll add 6% times 246, 14.76. In third year you will have 174 times 6% times 44. And so on, arriving to here number four. As a conclusion, since you know that the amount due to banks at the end of each year is the sum of principle and interest. You can also calculate the debt service, the sum of principle and the interest, that has been adapted to the performance in fact, you can appreciate that example. You have a very low debt service at the beginning, 72 and an increasing level of debt service, 86.76, 94.44, 95.44 as long as time goes on. This is the first trivial application of what typically the banks try to implement in a project finance transaction. The second example that we can use, is the so called dedicated percentage. Keep in mind what we saw in the round table, dedicated percentage means that in this case, creditors decide these are the share holders, to dedicate a certain portion of the debt, the debt service, as a percentage of the unlevered free cash flow of that specific year. So for example, let's assume that in this case, we have again our loan of an amount 300 at the end of year zero and 6% interest rate. So at the end of the construction phase, we have to repay 300 at an interest rate of 6%. Now, let's assume that our creditors together with production owners have agreed to dedicate a percentage of the unlevered free cash flow that is, 62.5%. So every year, 62.5% of the unlevered free cash flow will be dedicated to the repayment of principal and interest. Let's assume, again, that the performance in the first years of the life of the loan is 100 Euros at the end of year one, 105 Euros at the end of year two, 107 Euros at the end of year three, 107 at the end of year four, 105 at the end of year five, and 105 at the end of year six. Based on this dedicated percentage, let's assume to focus, and remember this is only on year number one, you know that the unlevered free cash flow is 100. And you must dedicate an amount of 62.5% to the repayment of principal and interest. So you can immediately get the amount of debt service that you will repay in that specific year. 62.5%. 62.5% times 100% returns you exactly 62.5. The 62.5 includes a portion of interest and a portion of principal. And keeping in mind that the interest is always calculated on the outstanding amount of the previous period. Interest in this case would be exactly 300 times 6% interest rate, or 18. You can now appreciate that since the total amount to be repaid to creditors is 62.5, and the value of interest is 18, the principal will be exactly the difference between 62.5 and 18, or, in this case, 44.5 which is exactly the amount that you see here in terms of principal paid. If you repeated the exercise for all the subsequent years. You will go on until you find a year when the debt service will be able to exhaust the amount of loan to be repayed. And in our example, you must wait for six years in order to completely repay the outstanding amount. In order to conclude this session, I want to tell you a couple of things. It is obvious that the tailor-made loan and the dedicated percentage make the loan more flexible. However, look carefully at example number two. In example number two, we are absolutely sure that in every year, the banks will receive an amount. Because this is a percentage of performance. If the performance is good, I will receive more money. If the performance is less, I will receive less money. However, if my bank is willing to amortize the loan in a specific period of time, say, for example, four years, if we look at that one example, with the percentage of 62.5%, we will never be able to repay the loan in four years time. You need six years to fully amortize the loan. So, this is another base of negotiations, creditors will return to those bosses and say, listen, 62.5 is too low. We must increase the dedicated percentage, in order to shrink the period of repayment and make it compatible with my original request. Say for example, five years. So you have to manage a trade off. More certainty versus their certainty, not to be able to repay the loan in the total tenure, the total maturity. The creditors have decided to send for that specific loan.