Finance Agreements in Project Finance

Part One

Introduction

The first session provides an overview of both project finance and the operation of the common law of contract

• The key characteristics of project financing Limited recourse

• Single cashflow

The importance of cash flow volatility

The inter-relationships of all of the contracts and the counterparties

Jurisdiction

• The contracts that are required to be under local law

• The standardisation of contracts

Security

The role of security in a project financing is fundamentally different to conventional corporate lending.  This session identifies those differences.

• Why is security not usually essential in project financings

• Implications where the assets are movable and/or the lenders wish to remove the Sponsors

• Why project financings don’t go into insolvency

• Rescheduling and restructuring

• The correct finance law and jurisdiction

• Legal framework and the importance of legal opinions

• Classification of security types

• A typical project financing security structure

• Extractive industries – preventing tangible security with UJVs and bankruptcy-remote vehicles

• The role of the Security Trustee and the content of the Security Trustee Agreement

• Fixed & Floating charges

• A walk-through of the clauses within a mortgage debenture

Project Financing Loan Agreement: Differences to Conventional Corporate Lending Agreements

For those who are familiar with conventional corporate loan agreements, this section focuses on the differences that are encountered in a typical project finance loan agreement

• The loan syndication process in project financing

• The Mandate Letter and the Term Sheet

• The architecture of the project loan agreement

• Significance of Representations and Warranties

• The role of the project cash flow model

• Lockup covenants – LLCR, ADSCR – purpose and calculation method

• The cashflow waterfall

• The role of the Accounts Bank and the Accounts Agreement

• The two rules of contractual structuring in project financings

• Alternative Dispute Resolution Procedures

• Expert mediation

• New York Convention – International Arbitration

• Amortisation and when is a cash sweep justified?

• Common terms agreements

• Direct agreements and step-in rights to overcome the privity of contract

Part Two

Project Financing Loan Agreement: The Key Clauses

These are the clauses that either represent negotiation battlefields between lender and borrower, or which represent complexities to be addressed.

• Majority Lenders - Snooze and lose provisions

• Unanimous lender consent issues Super-majorities

• ‘yank-the-bank’

Prepayments and refinancing

Confidentiality – banks vs non-bank financial institutions

Market disruption

• Absence of benchmark rate

• Funding costs exceed benchmark

Sell-downs – novation, assignment, sub-participations

Material Adverse Change

Set-off complications

Appropriations law

Severance clause

Compliance certificates

Implications of default

Contractual cross-border enforcement issues – legal opinions

Implications of the Sarbanes Oxley Act 2002, if applicable

Bond trust deeds

The pros and cons of bond financing vs loan syndication.

Intercreditor Agreements

In a minority of project financings, there is a subordinated financing tier.  We review the key ingredients of the Intercreditor relationship.

• Relationship of senior and subordinated lenders

• Cashflow blockages

• Implications of default – subordinated lender rights

Guarantees – Completion & General

Common law guarantees are very technical documents, rich in technical dangers.  We identify the fairly numerous circumstances where they can fail to achieve their intended effect.

• The conventional completion guarantee

• How quantum should be determined

• Deficiency guarantees

• Some warnings about the enforceability of common law guarantees

• Guarantees vs indemnities

• Differences between Civil Law and Common Law guarantees

• Several vs joint & several

• On-demand vs shortfall guarantees

• Continuing security clause

• Variations clause

• No competition clause

• Termination or renunciation

• Conclusive evidence clause

• Survivorship clause

• Implications of the Statute of Frauds Act

Please Note – This course is unsuitable for participants to attend either Part 1 or Part 2 only

Training Objectives

• Gaining an appreciation of the key differences between corporate lending documentation and the finance documents associated with limited recourse lending

• Understanding the challenges and solutions of seeking to enforce contractual rights across sovereign borders

• Identifying the importance of Alternative Dispute Resolution Procedures versus litigation in the majority of project finance contracts

• Appreciating the complexities and significance of various types of security, and how it varies in different jurisdictions

Training Course Summary

This is a close examination of the various financing agreements used in a typical project finance transaction. In international project finance, the financing is likely to be governed by New York law (in the Western Hemisphere) or English law everywhere else.

The first half day identifies the structure and documentation of security, including the identification of the clauses in a fixed and floating charge, and their purpose. This is followed by an explanation of the differences found in real-world project finance loan agreements, contrasted with corporate loan agreements, and the contents of the Accounts Agreement.

The second half day deals with other lending agreement clauses that need careful consideration in a project financing deal. It also deals with Intercreditor Agreements, and various forms of guarantee, including Completion Guarantees, Deficiency Guarantees and a deep dive on Financial Guarantees (where common law differs materially from civil law)