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Ravi
What is Project
Finance?
Project Co is an SPV lenders only have recourse to cash flows or revenue from the project
Lenders rely on technical and economic valuations of the project to ensure its ability to
generate sufficient revenues
Capital intensive projects on greenfield site
Lengthy and complex loan documentation
Highly leveraged
Higher margins and fees to reflect risk of lenders
Parties involved
Borrowing side
Lending side
SPONSOR
Hedge providers
Mezzanine lenders
Government
Private
sector
specialist
retained by government
Private sponsor
PROJECT COMPANY
Local subsidiary
Joint Venture
Partnership of sponsors
Suppliers
Construction stage
Legal
Operating stage
Technical advisers
Financial advisers
Environmental advisers
Model auditors
Purchasers
Purchasers
of
the
projects
product(s) or service(s)
Contractual
Structure
Contractual Structure
Contractual Framework
Loan Agreement
Conditions precedent
To initial drawdown
Permits
Environmental diligence
To all drawdowns
Contractual Framework
Covenants
Financial ratios
Debt service coverage ratio
Debt to equity ratio
Dividends
Conditions
Modification of project contracts
Reporting
Events of default
Bankruptcy
of
sponsors
or
project
contract
counterparties
Concession or off take agreement defaults
Ability to replace other project contracts
Abandonment
Expropriation
Parallels
commonalities
Key differences
A securitisation can
only occur for cash
generative assets
(e.g. a loan portfolio
which is generating
interest payments)
In a securitisation,
there are typically a
large volume of
assets being
financed via a single
SPV (e.g. a portfolio
of mortgages).
The pool of assets
may therefore be of
a variable credit
quality and hence
the financing
Parallels
commonalities Key
differences
Leveraged Buy-Out
(LBO)
Highly leveraged
transactions
In a project financing,
the shareholders to
the transaction are not
contractually at risk if
the project vehicle
(borrower) defaults on
its loans
Venture Capital
Discrete number of
equity investors
High focus on equity
return of an
investment
Venture Capital
investments are
speculative
assessments of a
companys potential to
generate returns. A
project financing is
predicated on robust,
long term and highly
predictable financial
Contractual
Structure
Contractual Structure
Contractual Framework
Loan Agreement
Conditions precedent
To initial drawdown
Permits
Environmental diligence
To all drawdowns
Contractual Framework
Covenants
Financial ratios
Debt service coverage ratio
Debt to equity ratio
Dividends
Conditions
Modification of project contracts
Reporting
Events of default
Bankruptcy
of
sponsors
or
project
contract
counterparties
Concession or off take agreement defaults
Ability to replace other project contracts
Abandonment
Expropriation
Security Structure
Security Structure
Completion Guarantee
Direct Agreements
Senior debt
Hedging liabilities
Mezzanine debt
Intra-group debt
Inter-creditor Agreement
Subordination on insolvency
Enforcement of security
Changes to parties
Equity
Existing shareholders
New Shareholders
Mezzanine Lenders
Project Bonds
Hedging
DSRA
Insurance proceeds
Equity deposits
Cost overruns
Distribution Account
Intercreditor Agreement
Standstill agreements
Administration
Enforcement