Project Finance

CHAPTER 3Project Finance Agreements and Loan Documentation

Project finance is also referred to as “contract financing,” where the project company sits at the center of a series of project finance contracts and agreements. The project company is walled off as a legally independent special purpose company (SPC) or SPV established for the sole purpose of developing, owning, financing, constructing, and operating the underlying infrastructure project. The project company is the project contract counterparty for all key project contracts and agreements executed with various project stakeholders, including the construction contracts, operation contracts, input/feedstock and revenue offtake agreements, finance, and equity investment agreements, as well as any host government agreements.

The project company is restricted from engaging in any business activities other than the specific infrastructure investment and is ring-fenced and “bankruptcy-remote” from the business activities of the owners and other project counterparties and tightly controlled by the project lenders. The lenders hold a perfected security interest over all project assets, including first lien mortgages over physical project assets, pledges/assignment of project agreements, insurances, cash flows, and the equity owners' shares in the project company. To maintain the sanctity of bankruptcy-remoteness, the legal ...