Principles of Project Finance

project— e.g., construction of a new bridge alongside an existing one, where the

Project Company has the benefit of already established cash flow from traffic tolls

on the old bridge. In effect, the existing cash flow is the equity in the project. In

such cases the surplus cash required for the cover ratios may be used for debt pre-

payment, with the project being transferred back to the public sector when the debt

has all been paid off, but this still means that a higher tariff is required in the early

years of the project’s operation to provide the required cover ratios.

There is probably more scope than has been used in the project finance market

so far, however, for the use of “contingent” equity, that leaves investors with the

same equity risk but ...