Introduction to Project Finance Toolkit
A selection of core resources to assist counsel in understanding project finance transactions, including the sources of financing, current trends and industry specific resources.
Project finance is a structure that is used to provide limited recourse ( www.practicallaw.com/5-382-3587) or non-recourse financing to:
Construct and develop capital intensive projects (for example, oil or gas pipelines, roads, power plants, mines and airports).
Modify, expand or rehabilitate existing large-scale projects.
Refinance existing project debt.
Project finance attorneys should understand all aspects of the project being financed using this structure. The loan and security documents represent only one part of the transaction and must be understood in the context of the project's sector, development and wider contractual arrangements (including construction contracts, operation and maintenance agreements, offtake agreements and supply arrangements).
There is no standard or typical project finance transaction. The contractual arrangements and the rights and obligations of the parties vary depending on many factors, including the nature and location of the project. However, in all projects, counsel for the project owner and the lenders must understand:
The sources of the project's financing, whether commercial bank loans, institutional debt, project bonds, export credit financing or government financing.
The parties involved in the transaction, their roles and their relationships to one another.
The nature of the project being built, modified or refinanced and how it will generate the revenues required to repay the debt.
Any factors that can have an adverse effect on:
the project's ability to generate the revenues required to repay the debt;
the lenders' rights to receive full repayment of the debt; and
the owner's return on its investment.
The resources in this Toolkit:
Include an explanation of project finance.
Explain the factors and risks that may have an adverse effect on a project and the project participants.
Describe the sources of capital for project finance transactions.
Provide additional information on projects in specific industries.
Industry Specific Resources
Project financing can be used to structure and finance a wide range of projects. While project financing transactions share certain common elements, projects in particular industries raise specific issues that must be understood. The resources below set out certain issues to consider if the project is in the power, energy and infrastructure sectors.
Oil and Gas
Cross Border Resources
Projects in developing or emerging markets present unique issues that counsel must consider. The resources below discuss certain issues that may arise in cross-border projects: