OVERVIEW

This chapter reviews the private-sector debt markets for project finance, in particular commercial banks (cf. 3.1) and bond investors (cf. 3.2). The uses of mezzanine or subordinated debt (cf. 3.3), leasing (cf. 3.4), and vendor finance (cf. 3.5) are also considered. Loans and guarantees provided by export credit agencies and multilateral and bilateral development banks, mainly for projects in developing countries where the private sector is not willing to assume the credit risk in the country concerned, are discussed in Chapter 11 (but cf. 3.6).

Private-sector project finance debt is provided from two main sources commercial banks and bond investors. Commercial banks provide long-term loans to project companies; bond holders (typically long-term investors such as insurance companies and pension funds) purchase long-term bonds (tradable debt instruments) issued by project companies. Although the legal structures, procedures, and markets are different, the criteria under which debt is raised in each of these markets are much the same. ("Lender" is used in this book to mean either a bank lender or a bond investor.)

In 2001 (according to market statistics collected by the journal Project Finance International), the total amount of project finance debt raised from private-sector lenders was approximately $133 billion, of which $108 billion was raised through bank loans and $25 billion through bonds. Around a third of the total, $47 billion, was raised for projects in the United States, and $38 billion went to projects in Western Europe.

The World Bank estimates that total bank debt provided to developing countries in 2000 was $125 billion and bond debt $77 billion. ^[1] Based on the Project Finance International statistics...