TABLE OF CONTENTS Debt service (i.e., loan interest payments and principal repayments) is one of the biggest factors in the financing structure that influences an investor's rate of return.
The faster investors in a Project Company are paid dividends, the better their rate of return. Investors therefore do not wish cash flow from operation of the project to be devoted to repayments to lenders at the expense of these dividends. Lenders, on the other hand, generally wish to be repaid as rapidly as possible. Striking a reasonable balance between these conflicting demands is an important part of the loan negotiations.
The issues that come up in negotiating the debt repayment schedule are:
The term of the financing (cf. 13.2.1)
The average life of the financing (cf. 13.2.2)
The repayment profile (cf. 13.2.3)
Flexibility in repayment (cf. 13.2.4)
In general, project finance loans and bonds are much longer in term (repayment-period) than normal bank loans; a power project may have a 2- to 3-year drawdown period during construction, and then 15 years of repayment, giving a total term of 17 18 years; an infrastructure project finance may be for 25 years or more. (But cf. 13.6.3 on the use of the shorter "mini-perm.") Financing for natural resources and telecommunications projects is usually much shorter in term, taking account of the shorter life cycle of such projects.
The overall term of the financing depends mainly on the long-term certainty of the cash...
