Risk Reduction for Energy Project Sponsors Through Synthetic, Revenue-Neutral Diversification
Financial institutions and insurance companies account for 96% of the activity in the $4.8 trillion credit derivatives market while corporations account for a mere 4%. This article makes a case for? synthetic, revenue-neutral diversification? as a method for energy firms to manage the credit risk in their long-term power-purchase agreements (PPAs). Synthetic, revenue-neutral diversification involves a firm buying insurance on assets in its portfolio and paying the associated insurance premium by simultaneously selling insurance to another firm, thus enabling it to avoid any cash expense. The primary objective of synthetic, revenue-neutral diversification is implicitly to change the firm?s asset portfolio and to increase diversification without reducing the firm?s revenues. In an example, two independent power producers use credit derivatives to diversify the geographic exposures of their PPA portfolios, thereby reducing their expected losses, improving their credit ratings, and lowering their cost of borrowing.
Implementing Credit Derivatives
Preface. Introduction. The Structures. Legal and Regulatory Aspects (by Claude Brown of Clifford Chance). Analysis of Credit Spreads. Revenue-Neutral Diversification. Examination of Term Sheets. Credit Derivatives and the Repo Markets. Collateralized Bond Obligations. Locating the CD Function within a Bank. Credit Risk Management in Asia. CreditMetrics. CreditRisk+. Credit Derivatives and Bank Loans. Creation and Analysis of Structured Credit Derivatives. The Valuation of Credit Derivatives. Analysis and Pricing. Glossary. Index.
Hungary : a regulatory and structural review of selected infrastructure sectors
Hungary was one of the first countries in Central and Eastern Europe to embark on economic transition. It has also led the region in terms of the restructuring and privatization of the infrastructure sectors electricity, gas, and telecommunications. In fact, when negotiations over accession into the EU commenced, Hungary's institutional and structural framework was comparable to, if not ahead of, that of most EU countries. However, even an excellent process of reform provides some opportunities for further improvements, especially as new information and experience accumulate. This report: Provides a diagnostic assessment of recent and ongoing structural and regulatory reforms in Hungary's infrastructure sectors-electricity, oil and gas, and telecommunications; Identifies priorities for additional competitive restructuring and regulatory decontrol measures, their expected impacts, and policies designed to minimize the transition costs of deregulation and market liberalization; Assesses the progress made toward compliance with the European Union (EU) accession requirements and identify areas that might benefit from special attention to accelerate the transition to a liberalized regime; Identifies the major regulatory issues that need to be addressed in the medium term by the Hungarian regulatory agencies and suggest a strategy for addressing these issues. This volume will be of interest to Bank staff, policymakers, and World Bank client countries."