From Principles of Project Finance


Apart from the lenders advisors' fees (and the costs of the rating agency if the debt is rated), the main financing costs payable by the Project Company are:

  • If the loan is on a floating interest rate basis, the base interest rate (e.g., LIBOR) plus the interest margin, together with net payments under an interest rate swap (cf. 9.2.1)

  • If the loan (or bond) is on a fixed rate basis, the interest rate

  • Advisory, arranging and underwriting fees

  • Commitment fees

  • Agency and security trustee fees

International project finance loans at a floating rate based on LIBOR typically have interest margins in the range of 1 2% over LIBOR. Pricing is usually higher until completion of construction, reflecting the higher risk of this stage of the project, then drops down, and then gradually climbs back again over time. (Thus in a project with a loan covering a 2-year construction and 15-year operation period, the margin might be 1.25% for years 1 2, 1.1% for years 3 7, 1.2% for years 8 13, and 1.3% for years 14 17.)

Commercial bank lenders also require standard "market disruption" and "increased costs" provisions in their long-term floating rate loans; these provide that if the cost base (e.g., LIBOR) is no longer available in the market, or does not represent their true cost of funds, or a change of law or regulation has increased the costs of funding the loan, the full cost is passed on to the borrower (cf. 9.2.4).

If fixed-rate lending is being provided by an ECA or IFI on a subsidized or noncommercial basis, the...

Products & Services
Banking Software
Banking software offers high-end technological and economical banking solutions to mid and large-size banks worldwide. Banking software equips banks with the latest technology trends in banking.
Direct Mail and Fulfillment Services
Direct mail and fulfillment services are specialized contract services that broadcast mailed marketing materials to target audiences who are usually identified by databases, provided by a direct mail company or the client.
Billing Software
Billing software is used to send accounts to customers for products and services. Billing Software processes orders, invoices and credit cards.
Electric and Gas Utilities
Electric utilities and gas utilities supply electric power and/or natural gas or connect lines to industrial, commercial, and residential customers.
Wireless Communications Services
Wireless communications services provide cellular phone service, SMS, WAP and GPRS services to mobile phones.

Topics of Interest

13.5 CONTROL OF CASH FLOW Just as during the construction period of the project the lenders only allow drawings to be made and costs to be paid when they are satisfied that these are for the...

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...

13.2 DEBT SERVICE 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...

Glossary Acceleration After a default, the loan is fully due and payable. Repayments are accelerated to the present. Account party In a commercial letter of credit, the party instructing the bank to...


M Mandatory event A corporate action which affects the securities without giving any choice to the security holder. Margin Initial margin is collateral placed by one party with a counterparty or...