Lawyer Monthly Magazine - August 2019 Edition

Project Finance: The Trends and Challenges shield its other assets from the risk of a project failure. What are the main features of project finance? Due to the non-recourse or limited recourse structure, project finance requires a sustainable financial model, and a contractual framework that procures that the ability of the project to generate debt service is protected against a wide array of project risks. This implies that bankability requires long-term project contracts. It is common that key project contracts, such as concession agreements, EPC contracts, or long-term supply or off-take agreements are supplemented by direct agreements among the lenders or their agent and other project parties. These contracts may not only restrict the ability of other contract parties to terminate their contracts with the SPV, but also provide for step-in rights, that enable the lenders to replace the project company if the same fails. If state-owned enterprises or public entities are involved, lenders will frequently ask for government guarantees. Such arrangements with public entities need to be carefully reviewed to avoid conflicts with public procurement law or with budgetary rules. Public procurement law may, Firstly, what is the difference between project finance and corporate finance? Project finance, by definition, relies primarily on the cash flow generated by a project, with the project’s assets serving as collateral, the so- called ring-fencing. One main characteristic is its non- recourse or limited recourse structure, where guarantees of the sponsors are limited to the construction phase and to the start-up phase. The Borrower is mostly a special purpose vehicle (SPV). In contrast, thereto, corporate finance in a broader sense covers all sources of finance of a corporate or a group, including different forms of debt capital, equity or hybrid forms of capital. In a narrower sense, it refers to syndicated loans that are to be applied towards general corporate purposes, which are on balance sheet and for which the Borrower is liable with all of its assets. Due to its complexity, project finance is not suitable for small projects. While project finance is more expensive, it enables sponsors to finance projects off- balance sheet, which makes this form of finance attractive for PPPs, infrastructure projects, joint ventures or other projects where a sponsor wishes to Dietrich Stiller speaks about project finance. Below, he lists the difference between this and corporate finance, as well as the trends which are occurring. Why are infrastructure projects exposed to political risks and what impact does this have? Read on to find out. Completing The Deal Dr. Dietrich F. R. Stiller, SZA Schilling, Zutt & Anschütz 98 WWW.LAWYER-MONTHLY.COM | AUG 2019