bond trustee holds the security on behalf of the investors and calls meetings of
bond holders to vote on waivers or amendments of the bond terms.
Various factors affect whether a project should use commercial bank loans or
bonds (or a combination of the two) for its financing (Table 5.2).
Because of some of the uncertainties about the final availability or terms of
bond financing, Sponsors may arrange a bank loan as an insurance policy in case
the bond issue falls through, or put together a bank loan with the intention of
refinancing it rapidly with a bond. Obviously this involves extra costs.
In general, bonds are suitable for developed markets and “standard” projects.
They are also especially suitable if a project is being refinanced after it has been
built and has operated successfully for a period. Conversely, the greater flexibility
of bank loans tends to make them more suitable for the construction and early op-
eration phases of a project, projects where there are likely to be changes in the Off-
taker’s or end-user’s requirements, more complex projects, or projects in more
difficult markets.
Lenders use their own external advisers, largely paralleling and checking the
work done by the Sponsors’ external advisers (cf. §4.3). The costs of all these ad-
visers are payable by the Sponsors, and can add considerably to the total develop-
ment coststhey are payable whether or not the financing is concluded. It follows
from this that the terms of reference and fees for these advisers must be approved
by the Sponsors.
Advisers appointed by the lenders may include legal advisers, lenders’ engi-
neers, insurance advisers, model auditors, and others.
§5.4.1 L
The lenders’ legal advisers carry out due diligence on the project contracts, and
in due course they assist the banks in negotiating the financing documentation.
Both local and international lawyers may be engaged for this purpose.
§5.4.2 L
’ E
One of the major international engineering firms, which are now well used to
providing this type of advice, is appointed as lenders’ engineer (also known as the
Independent Engineer, or Technical Adviser (“TA”)). Their work is in two stages:
§5.4 The Roles of the Lenders’ Advisers 63

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