The PC forward-sells ER’s to third parties, having undertaken some or all of the PDD design and project development unilaterally. The third parties may wish to hold the ER’s or to on-sell them to third parties and the current price they pay to the PC depends on how far in advance of ER issuance the ERPA is signed, but will be a fraction of the expected future value because of the many risks of non-delivery.
A “master” policy is issued to the PC, under which named third parties are beneficiaries in the event of the PC’s failure to deliver ER’s. This enables the PC to receive payment for its ER’s, which improves the project’s finances. The insurance may allow the PC to receive a greater present cash value for its ER’s, because of (i) the added security over delivery and (ii) the improved ability it gives the third parties to trade their entitlement to the ER’s prior to issuance, as they are able to pass on their interest in the policy to another buyer (subject to Parhelion’s “know-your-customer” checks on that buyer).
The policies can cover the full range of insurable risks, subject to the PC and the PC’s owners providing Parhelion with various
Representations and Warranties concerning their involvement with the Project.
Premium is either paid by the PC, its owners or by the beneficiaries – if the latter, the PC pays Parhelion a Commitment Fee in return for issuing the Master Insurance Policy and then premium is payable by each beneficiary when it is added to the policy. In either case, there is no additional or return premium (but there is an administration charge) if the beneficiary sells the ER and premium is fully earned at inception.
In order to claim, the beneficiary must provide proof of ownership of the ER’s and of non-delivery and payment is made within 120 days of the contractual delivery date of the ER’s.
We offer the following options:
1. Fixed value (agreed at inception)
2. Floating (market value at the date of scheduled delivery)
3. Replacement ER’s (or equivalent compliance instrument)
Policies incorporate appropriate deductibles, dependent on the interests of the Insured.
Pre-registration risks can be covered for the amount paid in advance to the PC for the ER’s.
(1) The PC’s owners or a special purpose company may act as a silent party in the transaction (not shown in the diagram).
(Sale of ER’s and transfer of benefit of insurance
Alternatively, the PC can opt to pay the premium.)