TABLE OF CONTENTS As already discussed (cf. 2.2), lenders do not expect to be able to get their money back by selling the Project Company's assets, as in most project financings only the cash flow of a successful continuing operation will provide this repayment. Foreclosure on project assets is seldom a solution to a problem with the project; however, security over the project as a whole remains important:
To ensure the lenders are involved at an early stage if the project begins to go wrong
To ensure that third parties (such as unsecured creditors) do not gain any prior or pari passu rights over the project assets
To ensure that project assets are not disposed of without the lenders' agreement
Generally, to enable the lenders to encourage cooperation by the Project Company if it gets into trouble
The lenders' security normally has four layers:
Control of cash flow (cf. 13.5)
The ability to step-in to the project under Direct Agreements (cf. 7.7)
Mortgages and assignments of the Project Company's assets and contracts (cf. 13.7.1)
Security over the Project Company's shares (cf. 13.7.2)
There is seldom any substantial disagreement between Sponsors and lenders about the latter's right to take security over all physical assets, contractual rights, and guarantees, which the Project Company has. The security package therefore includes:
Mortgages or charges over the project site, buildings, and equipment
Assignment of Project Contracts, including advisory contracts with parties such as the Owner's Engineer, and any bonds...
