Project Finance for Business Development

CHAPTER 13Structuring Project FinanceHow Everything Comes Together

The structuring of project financing is a framework in which ownership structure, project structure, risk structure, and financial structure decisions are made and tied together in the project's legal structure which, in turn, forms a foundation for funding the project on a limited recourse basis. The ownership structure is how the special purpose company (SPC) is organized; that is, as a corporation, unincorporated joint venture, limited liability partnership, etc. Project structure on the other hand refers to the agreements defining responsibilities and transfer of rights and/or ownership of the SPC such as build, operate, and transfer of ownership (BOT), build, own, operate, and transfer (BOOT), build, lease, and transfer (BLT), etc.

Risk structure is the prioritization and mitigation of risks after the identification, assessment, and allocation process is completed. The project's legal structure is the web of contracts and agreements negotiated to make financing possible. Financial structure refers to the mix of financing used to fund a project, which includes equity, short‐ and long‐term loans, bonds, trade credits, etc. and the cash flows to equity providers and the lenders.

Note: Financial structure and capital structure are used interchangeably, but there is a difference: Capital structure = Financial structure – Short‐term liabilities.

An example of a financing structure is presented in Figure 13.1 ...