OVERVIEW

This chapter examines some of the main financial structuring issues likely to arise once the commercial fundamentals and risks of the project, and the cash flow that results from these, have been reviewed as set out in previous chapters.

The main elements in the financing negotiations between the Project Company and its lenders are likely to include:

• The debt: equity ratio (cf.1 13.1)

• The term (length) of the debt and its repayment schedule (cf. 13.2)

• The drawdown schedule for debt and equity (cf. 13.3)

• The interest rate and fees to be charged by lenders (cf. 13.4)

• Lenders' control of the Project Company's cash flow (cf. 13.5)

• Provisions for prepayment (cf. 13.6)

• Lenders' security (cf. 13.7)

• Conditions precedent to Financial Close and drawings on the debt (cf. 13.8)

• Representations and warranties to be given by the Project Company (cf. 13.9)

• Covenants or undertakings by the Project Company (cf. 13.10)

• Events of default (cf. 13.11)

• Voting and enforcement on default (cf. 13.12)

• Intercreditor arrangements (where more than one lending group is involved) (cf. 13.13)

As discussed in 5.1.7, these conditions are set out first in a term sheet with the lenders (or an investment bank cf. 5.2.1) and then in a loan agreement and associated security documentation.

There is no merit in innovation for the sake of it in project finance. As is evident, this is a highly complex form of financing, and innovative financing structures may just add to the time and cost of putting the deal...