TABLE OF CONTENTS A cash sweep is a form of mandatory (compulsory) prepayment of the loan by the Project Company. Other mandatory prepayments are normally required:
If the Project Company realizes cash from the sale of assets (unless the cash is used to replace the asset)
If performance LDs are received from the EPC Contractor (prepayment is made to the extent necessary to maintain the lenders' cover ratios; any surplus LDs flow into the cash flow cascade note that delay LDs flow straight into the cascade)
If insurance proceeds are not applied to the restoration of the project
In these cases the cash is applied directly to prepayment rather than passed through the cascade.
A mandatory prepayment of the loan is required if it becomes illegal for the lenders to continue with it; this is usually meant to cover the possibility of international sanctions against the country in which the Project Company is located. (The obligation may be limited to prepayment insofar as the Project Company has available cash flow.)
The Project Company may also wish to reduce or prepay part or all of the loan voluntarily:
The total funding raised may not all be needed (cf. 13.6.1).
Cash distribution restrictions imposed by the lenders or for other reasons may make it cost effective for the investors to prepay part of the (expensive) debt rather than have funds trapped in the Project Company, which raises the issue of which loan installments such prepayments should be applied against (cf. 13.6.2).
The Project Company may wish to prepay...
