A guide to key resources: project finance

Practical Law UK Practice Note Overview 7-386-0036 (Approx. 20 pages)

A guide to key resources: project finance

by Practical Law Finance

Introduction

This note acts as a guide to Practical Law Finance's resources on the debt financing of energy, infrastructure and other capital-intensive projects, for example, the:

Building of a tunnel, bridge, motorway or rail system.
Development of an oil or gas project for the exploitation of oil and gas deposits.
Building of a power station (conventional, renewable or nuclear).
Development of telecommunication, cable, water or wastewater systems and electricity distribution networks.
Development or redevelopment of an airport or seaport facility.

Project finance overview

Project finance is a complex multi-disciplinary topic, involving the following key aspects:

Financing arrangements, including a suite of finance documents relating to the debt financing raised for the project (see Financing aspects of a project finance transaction).
Commercial arrangements, including a suite of project documents relating to the development, construction and operation of the project (see Commercial aspects of a project finance transaction).
Corporate arrangements, including corporate organisational documents relating to the corporate governance of the project company (see Corporate aspects of a project finance transaction).
Various miscellaneous aspects of project finance transactions, including those involved in structuring, financial close and ongoing implementation of a project (see Miscellaneous aspects of a project finance transaction).

This note identifies resources relevant for each of these aspects of a project finance transaction. It also identifies detailed materials relating to certain sectors where project finance is often used as a financing technique (see Specialised industry sectors).

Understanding the structure of a project finance transaction

For an introduction to project finance, including an outline of a typical project finance structure, an overview of the parties to the project and their objectives and the key issues for lenders, see Practice note, Project finance: UK law overview.
For illustrative deal structures for project finance transactions, see Deal structures, Project finance – Syndicated loan with project company borrower and Project finance – Syndicated loan with holdco borrower and upstream guarantee from projectcos.

Understanding the risks of a project finance transaction

Appropriate risk allocation among the parties to the transaction forms a central focus of any project finance transaction.

For a note on identifying and managing the typical risks of a project finance transaction, including construction risk, operational risk, offtake risk and political risk, see Practice note, Identifying and managing project finance risks: overview (UK).
See also Insurance in project finance transactions.

Financing aspects of a project finance transaction

Financing structures and term sheet for a project finance transaction

For a note providing an overview of the various financing structures used in project finance transactions, see Practice note, Financing structures used in project finance transactions.
For a note describing the advantages and disadvantages of the various financing structures used in a project finance transaction, see Practice note, Financing structures used in project finance transactions: advantages and disadvantages.
For a note exploring the impact that the transition away from LIBOR may have on project finance transactions, see Practice note, Project finance facility provisions: overview of post-LIBOR interest rate clauses.
For a template term sheet for use with a syndicated project finance loan transaction, see Standard document, Term sheet: syndicated term loan, project finance facility (Sectors).
For a template commitment letter for use with a syndicated project finance loan transaction, see Standard document, Commitment letter (best efforts or underwritten mandate): project finance facility (Sectors).
For a note explaining the use of financial covenants in project finance transactions, see Practice note, Project finance facility provisions: financial covenant fundamentals.

Bank loans

For a standard clause setting out the typical definitions used in a project finance transaction and related drafting notes, see Standard clause, Project finance facility provisions: definitions.
For a standard clause setting out the typical conditions precedent used in a project finance transaction and related drafting notes, see Standard clause, Project finance facility provisions: conditions precedent.
For a standard clause setting out the typical representations and warranties used in a project finance transaction and related drafting notes, see Standard clause, Project finance facility provisions: representations and warranties.
For a standard clause setting out the typical operational covenants (or undertakings) used in a project finance transaction and related drafting notes, see Standard clause, Project finance facility provisions: covenants (operational undertakings).
For a standard clause setting out the typical informational covenants (or undertakings) used in a project finance transaction and related drafting notes, see Standard clause, Project finance facility provisions: covenants (information, budget preparation, reporting and access undertakings).
For a standard clause setting out the typical financial covenants used in a project finance transaction and related drafting notes, see Standard clause, Project finance facility provisions: financial covenants.
For a standard clause setting out the typical events of default used in a project finance transaction and related drafting notes, see Standard clause, Project finance facility provisions: events of default.
For a general introduction to reserve based lending facilities, which may be used in the context of financing oil or gas projects, see Practice note, Reserve based lending: the fundamentals.

Export credit agencies

Many cross-border projects may involve one or more export credit agencies (ECA) which can help mitigate certain political risks assoicated with some emerging markets.

For an overview of ECA finance, see Practice note, Export credit agency finance: overview.
For a note describing the types of cover offered by ECAs, see Practice note, Export credit agency finance: types of cover.
For a note on the key documents used in an ECA financing, see Practice note, Export credit agency finance: key documents and terms.

Debt securities

For a note on the use of project bonds as a source of funding in project finance, see Practice note, Project bonds.
For an overview of raising debt finance by issuing eurobonds generally, including an explanation of the key documentation and parties and a guide on how to do a bond issue, see Practice note, Bond issues: overview.
For a note that provides a step-by-step guide to raising finance by issuing bonds and describes the key stages involved in a general bond issue, gives practical tips specific to each stage and discusses post-closing matters, see Practice note, Bond issues: step-by-step guide.
For a guide to Practical Law Finance's debt capital markets resources, see Practice note, A guide to key resources: debt capital markets.

Sharia compliant project finance

For an introduction to the basic principles of Islamic law (or Sharia) that affect finance transactions, including project finance, see Practice note, Islamic finance: UK law overview.
For information on Sharia compliant financing of commercial real estate, including certain project finance structures, see Practice note, Sharia compliant financing of commercial real estate.
For a note exploring the impact that LIBOR transition may have on Islamic project finance transactions, see Practice note, Project finance facility provisions: overview of post-LIBOR interest rate clauses: SOFR where a project financing utilises Islamic finance.

Security and quasi-security in a project finance transaction

Project finance transactions are a type of secured lending transaction. As a result, taking security and the ability to enforce it forms a critical part of any project finance transaction.

General

For an introduction to taking security in project finance transactions, see Practice note, Taking security in project finance transactions.
For an introduction to the function of security trusts and the role of security trustees in finance transactions (including project finance), see Practice note, Security trusts in finance transactions: overview.
For an overview of Practical Law Finance's resources on security and quasi security arrangements, see Practice note, A guide to key resources: security and quasi-security.

Types of security

For an outline of the options available to lenders when taking security, see Practice note, Taking security.
For an introduction to taking security over contractual rights, such as those under project documents, see Practice note, Taking security over choses in action.
For a discussion of cash management and project accounts in a project finance transaction, see Practice note, Cash management and project accounts in a project finance transaction.
For an introduction to taking security over banks accounts, such as a project account, see Practice note, Taking security over receivables and accounts.
For an introduction to taking security over shares, such as the shares of a project company, see Practice note, Taking security over shares and debt securities.

Perfection and priority of security

For an introduction to the different methods of perfecting security, the basic rules governing priority and contractual ways in which the rules can be varied, see Practice note, Perfection and priority of security.

Direct agreements and enforcing security

For an overview of the importance and use of direct agreements in a project finance transaction, see Practice note, Direct agreements in a project finance transaction.
For a template direct agreement, see Standard document, Direct agreement.
For an overview of how a lender (or other chargeholder) may enforce security over the assets of a corporate security provider, see Practice note, Enforcing security: overview.

Guarantees and indemnities

For a note covering legal and drafting issues relating to corporate guarantees and indemnities, see Practice note, Guarantees and indemnities.

Construction security

For a quick guide to collateral warranties from contractors and other professionals and third party rights (including step-in rights) as a form of "construction security", see Practice note, Collateral warranties and third party rights on construction projects: a quick guide.

Performance guarantees, bonds and letters of credit

For an introduction to performance guarantees, demand guarantees, bonds and standby letters of credit, see Practice note, Bonds, guarantees and standby credits: overview.
For a quick guide summarising the different forms of bond that may be used on a construction and engineering project, see Practice note, Construction bonds: quick guide.

Cross-border security

For a note providing an overview of the issues that need to be considered when taking security over a foreign asset or from a foreign entity, see Practice note, Taking cross-border security.
For a multi-jurisdictional guide to taking security, see Finance Global Guide.

Intercreditor arrangements

For an explanation of the nature and purpose of an intercreditor deed, see Practice note, Intercreditor deeds: overview.
For a template intercreditor agreement relating to secured lending, see Standard document, Intercreditor deed for secured debt.
For a template deed of priority (without subordination provisions), see Standard document, Deed of priority.

Subordination arrangements

For a note which examines the legal background and case law relating to subordination of debt and which analyses different methods used to alter the priority of debts, see Practice note, Subordination.

Due diligence for a project finance transaction

Due diligence is an important and potentially lengthy part of any project finance transaction.

For a note on the purpose and process of conducting due diligence in a project finance transaction, see Practice note, Due diligence for a project finance transaction: purpose and process.
For a note setting out a due diligence checklist for a project finance transaction, see Practice note, Due diligence for a project finance transaction: report contents checklist

Reaching financial close in a project finance transaction

Reaching financial close of a project finance transaction can be a challenging process. Some key issues to consider include:

Conditions precedent in project finance transactions

Conditions precedent play a large role in reaching financial close in a project finance transaction. For more information generally on conditions precedent in lending transactions, see Conditions precedent in lending transactions: overview.
For a template standard clause setting out typical conditions precedent found in a project finance transaction, see Standard clause, Project finance facility provisions: conditions precedent.

Legal opinions in project finance transactions

For an overview of the matters to be considered when requesting or responding to a request for an English legal opinion in a finance transaction, see Practice note, Legal opinions in finance transactions: overview.

Execution of project finance documents

For a note on the execution of deeds and documents which includes specimen execution clauses for various legal entities, see Practice note, Execution of deeds and documents.
For a note on the role of notaries which explains what notarisation, legalisation and apostille mean, see Practice note, Notaries and notarisation.

Projects in trouble and insolvency

Given the complexities involved in a project finance transaction, it is not uncommon for them to require careful monitoring on an ongoing basis. It is also not uncommon for them to encounter difficulties. For a note considering what to do with a project in trouble, see Practice note, Projects in trouble: guidance for lenders.

The potential implications of insolvency law should also be recognised when advising on project finance transactions.

Insolvency generally

For an introduction to the aims of and background to corporate insolvency law, together with a brief overview of the various insolvency procedures available, see Practice note, Corporate insolvency: a guide.

Restructuring a project

For a note that looks at the key stages involved in restructuring corporate debt, see Practice note, Corporate debt restructuring: step by step.

Cross-border restructuring and insolvency

For a multi-jurisdictional guide to restructuring and insolvency, see Restructuring and Insolvency Global Guides.
For background information on the international aspects of insolvency, see Practice note, Cross-border insolvencies.

Commercial aspects of a project finance transaction

Construction aspects of a project finance transaction

The construction phase of a project finance transaction generally constitutes the riskiest aspect of the project. As a result, the construction aspects play an important role in the structuring of any project.

For more information on the construction sector generally, see our construction sector page.

Structure of a construction or engineering project

For a quick guide to the legal aspects of a construction or engineering project, see Practice note, Construction projects: the legal structure: a quick guide.
For information on the roles and responsibilities of a project monitor (sometimes, also known as a technical adviser), including the advantages to a funder and the project if a project monitor is appointed, see Practice note, Project monitoring.

Bankable construction contracts

For a note considering what makes a construction contract bankable in a project finance transaction, see Practice note, Bankable construction contracts: key issues in project finance transactions.
For a note on more general issues to consider in an engineering, procurement and construction (EPC) contract, see Practice note, Engineer, procure and construct (EPC) contracts: key issues.

Operational aspects of a project finance transaction

Concession agreements

For a note on key issues to consider in a concession agreement, see Practice note, Concession agreements: key issues in project finance transactions

Offtake contracts

For a note on key issues to consider in an offtake agreement, see Practice note, Bankable offtake agreements: key issues in project finance transactions.
For a note on the key issues to consider when drafting, negotiating or reviewing a power purchase agreement (PPA), see Practice note, Power purchase agreement: key issues for drafting, reviewing and negotiating.
For a note that explains the key provisions of a long-term PPA for the electricity market in Great Britain, see Practice note, Power purchase agreement: overview of a long-term PPA.
For a template PPA for an onshore wind project, see Standard document, Power purchase agreement: onshore wind (Sectors).

O&M contracts

For a note on the key issues that parties should consider when drafting and negotiating an operation and maintenance (O&M) contract and the key provisions of a typical project finance O&M contract, primarily in the context of a project in the energy sector, see Practice note, Operation and maintenance (O&M) contracts: key issues.

Corporate aspects of a project finance transaction

Corporate aspects of a project finance transaction play an important role in the structuring of a project.

For a note on setting up a company in England or Wales, see Practice note, How to incorporate a company under the Companies Act 2006.
For a note providing an overview of a shareholders' agreement for a joint venture, see Practice note, Shareholders' agreement and articles of association: joint ventures.
For a template shareholders' agreement, see Standard document, Joint venture shareholders' agreement: majority and minority shareholder.
For a checklist of questions to consider when setting up a joint venture, see Setting up a joint venture: checklist.
For a toolkit highlighting resources relevant to private share acquisitions, see Private share acquisitions toolkit.

Specialised industry sectors

Industry sectors

Practical Law has launched and is currently expanding its sector-specific project content.

For more information on the energy sector generally, see our energy sector page.

For more information on the infrastructure sector generally, see our infrastructure sector page.

Oil and gas

For financing options available in the oil and gas sector, see Practice note, Financing options in the oil and gas industry.
For an introduction to financing liquefied natural gas (LNG) projects, see Practice note, Financing liquefied natural gas projects.
For a note examining the downstream gas industry in Great Britain including gas transportation, shipping, supply, storage and trading and explaining the concepts of upstream, midstream and downstream, see Practice note, Downstream gas industry: overview.
For a general introduction to reserve based lending facilities, which may be used in the context of financing oil or gas projects, see Practice note, Reserve based lending: the fundamentals.
For a note on shale gas, see Practice note, Shale gas overview: summary of consenting regimes and government support.

Power

For a note on the preliminary stages in the development of a power project, from the feasibility study through to preparing to obtain finance, see Practice note, Power projects: development phase.
For an overview of a nuclear power project from project development to decommissioning, including key project documents, revenue streams and consents and considering the issues involved in developing, financing, constructing, operating and decommissioning a nuclear power station in Great Britain, see Practice note, Anatomy of a nuclear power project.
For an overview of a wind power project, from project development to decommissioning, including key project documents, revenue streams and consents, see Practice note, Anatomy of a wind power project.
For an overview of a ground-mounted solar photovoltaic project from project development to decommissioning, including government policy, project milestones, key project documents and revenue streams, see Practice note, Anatomy of a ground-mounted solar power project.
For an overview of a gas-fired power project in England and Wales, from project development to decommissioning, including key project documents, revenue streams and consents, see Practice note, Anatomy of a gas-fired power project.
For a note outlining common terms used in the electricity sector in Great Britain covering power generation terminology as well as the electricity retail and wholesale markets, renewable and low carbon incentive schemes and electricity networks, see Practice note, Electricity sector: terminology.

Energy storage

For a note relating to project financing energy storage solutions, see Practice note, Structuring a bankable project: energy storage (Sectors).

Public sector projects

Public procurement

For a quick guide to the UK public procurement regime, see Practice note, Public procurement in the UK.
For a note setting out the implications of Brexit on public procurement in the UK, see Practice note, Brexit: implications for public procurement law.

PPP and PFI projects

For a look at the historic use of private finance initiative (PFI) in the UK, see Practice note, PPP/PFI in the UK.
For a note describing the typical documents historically used in PFI projects, see Practice note, PFI documents.
For a glossary of some common terms and acronyms used in PPP and PFI projects, see Practice note, PFI and PPP: a glossary of common terms.

Miscellaneous aspects of a project finance transaction

Tax in project finance transactions

The general tax principles that arise in a project finance transaction are similar to those that arise in other commercial loan transactions. The following resources provide an overview of various tax issues commonly encountered in finance transactions.

Tax issues for finance lawyers

For a summary of the tax issues that frequently arise in respect of commercial lending transactions, see Practice note, Tax for banking lawyers.

Tax issues in capital markets transactions

For a summary of the UK tax issues that arise in typical capital markets transactions, see Practice note, Bond issues: tax.

Withholding tax

For a summary of the UK withholding tax rules on payments of interest and certain other payments, see Practice note, Withholding tax.

VAT issues for banks

For a summary of the various VAT issues that arise for banks in the course of their business, see Practice note, VAT issues for banks.

Global guide on taxes

For a global guide to taxes on corporate transactions and finance transactions, see Tax on Transactions Global Guide.

Social, ethical and environmental issues in project finance

For a note on using loan proceeds to fund green projects, see Practice note, Green loans.
For a note on using loan proceeds to fund social benefit projects, see Practice note, Social loans.
For a note on sustainability-linked loans, see Practice note, Sustainability-linked loans.
For a note on environmental issues that can arise in finance transactions, see Practice note, Environmental issues in finance transactions.
For a brief overview of the social, ethical and environmental issues in financing transactions, see Practice note, Green finance and socially responsible investing (SRI): introduction.
For a note that discusses the Equator Principles (a set of voluntary social and environmental guidelines that certain financial institutions have agreed to be bound by) and their implications for project finance transactions, see Practice note, The Equator Principles.

Insurance in project finance transactions

For an overview on insurance and mitigating specific risks in project finance transactions, see Practice note, Project finance: UK law overview: Insurers.
For a practice note on credit risk insurance, see Practice note, Credit risk insurance: overview.

General insurance

For a note which explains the various doctrines and principles concerned with insurance, including what constitutes an insurable interest, subrogation, joint insurance, double insurance and noting, see Practice Note, Insurance contract law: general principles.
For a guide to Practical Law's UK and multi-jurisdictional insurance materials, see the Insurance collection page.
For additional information on the insurance and reinsurance sectors generally, see our insurance sector page.

Construction insurance

For a note which outlines the types of insurance relevant to construction and engineering projects and gives guidance on dealing with insurers, see Practice note, Insurance in construction and engineering projects.

Environmental insurance

For a note on the different types of insurance available to mitigate environmental risk, see Practice note, Environmental insurance.

Links to Practical Law resources on project finance

Practical Law Finance resources on project finance

Links to Practical Law Finance resources on project finance:

Related Practical Law resources

Links to Practical Law services covering key practice areas relevant to project finance transactions:

Project finance in other jurisdictions

Global guides

For relevant global guides, see:

United States

For project financing resources from a United States perspective, see Project Finance & Development.

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