Project Finance

Introduction

Project implementation and management

Parties To A Project Financing 2.1 Parties and their roles 9 2.2 Project company/borrower 9 2.3 Sponsors/shareholders 10 2.4 Third-party equity 11 2.5 Banks 11 2.6 Facility agent 12 2.7 Technical bank 12 2.8 Insurance bank/account bank 12 2.9 Multilateral and export credit agencies 12 2.10 Construction company 13 2.11 Operator 13 2.12 Experts 13 2.13 Host government 14 2.14 Suppliers 14 2.15 Purchasers 14 2.16 Insurers 14 2.17 Other parties 15 2.18 Summary of key lenders’ concerns 15 Section 3 Project Financing Documentation 3.1 Role of documentation 16 3.2 Shareholder/sponsor documentation 16 3.3 Loan and security documentation 18 3.4 Project documents 19 3.5 Force majeure 23 3.6 Lender requirements for project documents 25 Section 4 Project Structures 4.1 Approach to financing 26 4.2 Bonds 26 4.3 Leasing 28 4.4 North Sea model 29 4.5 Borrowing Base model 29 4.6 “Build Operate Transfer” “BOT” model 4.7 Forward Purchase model 33 Section 5 Sharing Of Risks 5.1 Identification and allocation of risks 35 5.2 Ground rules 35 5.3 Categories of project risks 36 Section 6 Security For Projects 6.1 Approach of lenders 43 6.2 Reasons for taking security 43 6.3 Universal security interests 44 6.4 Scope of security 45 6.5 Third party security 48 6.6 Direct agreements 50 6.7 Host government support 52 6.8 Comfort letters 52 6.9 Governing law 53 6.10 Security trusts 54 6.11 Formalities 54 6.12 Problem areas 54 Section 7 Insurance Issues 7.1 Role of project insurances 55 7.2 Who insures? 55 7.3 Scope of cover 55 7.4 Problem areas 55 7.5 Protection for lenders 56 7.6 Broker’s undertaking 57 7.7 Reinsurance 58 Section 8 The Project Loan Agreement 8.1 Warranties, covenants and events of default 59 8.2 Project bank accounts 61 8.3 Appointment of experts 61 8.4 Information and access 62 8.5 Cover ratios 63 8.6 Governing law and jurisdiction 65 8.7 Completion issues 66 Section 9 Export Credit Agencies And Multilateral Agencies 9.1 The role of export credit agencies in project finance 67 9.2 An introduction to the G7 ECAs 67 9.3 The advantages of involving ECAs in a project 67 9.4 The OECD consensus 68 95 Departing from consensus 69 9.6 Categories of ECA support in the context of a project financing 69 97 The changing role of the ECA in project finance 73 9.8 ECAs and credit documentation 74