Principles of Project Finance

States in 2000 were structured as 3–5-year mini-perms. This approach is, how-

ever, only viable in a sophisticated financing market, where banks are happy that

there is no significant refinancing risk and the project can accommodate or hedge

the risk of higher interest rates at the time of the refinancing, which is more

difficult for a highly-leveraged financing. (It also reflects an unwillingness in the

U.S. banking market to offer much longer term loans.)

In many otherwise sophisticated markets, banks are still unwilling to accept the

refinancing risk for a loan with a balloon maturity. Given the extensive experience

of refinancing in project finance translations, this generally unsophisticated ap-

proach is surprising. Logically, either the project will go ...