Project Finance Security and Limited Recourse

Lachlan Tait

15 years: Renewable energy & project finance lawyer

In this video, Lachlan will continue to explore the key elements involved in project finance and will explain why security is such a vital consideration for lenders. He will also take us through project revenues, which are used to service the project finance debt and pay contractors for work completed.

ESG Financial Products

Subscribe to watch

Access this and all of the content on our platform by signing up for a 7-day free trial.

Project Finance Security and Limited Recourse

6 mins 21 secs

Key learning objectives:

Outline the key elements involved in project finance
Understand why security is such a vital consideration for lenders
Define project revenue

Overview:

This video highlights the security documents and direct agreements that enable project lenders to take control of projects, even if this may be a relatively rare, "last resort" scenario. These security measures, which are specific to project finance when compared to other types of finance, instil in lenders a sense of assurance that the relevant risks are manageable and that their level of residual exposure is acceptable.

Subscribe to watch

Access this and all of the content on our platform by signing up for a 7-day free trial.

Summary

What are the two categories of security?

The first is a set of formalised legal security interests, such as mortgages, pledges and other security instruments over the project assets, which include the shares in the SPV, its bank accounts, project revenues, the physical assets, the contracts and so on.
Second, these security interests are supported by direct contractual rights for the lenders to intervene in, and if necessary take over, all of the project contracts.

What are project revenues?

The fact that project finance is non-recourse means that the debt is serviced only from project revenues. This explains why lenders are so concerned with securing all elements of the project. If there is a problem with the project, the lenders can exercise their rights to take over the project and deal with it as they see fit. Project finance security structures provide a means to save a troubled project and its revenues. In renewable energy project financings, the split between debt and equity is generally between 60:40 and 80:20. This can of course be contrasted with corporate financing, where debt finance is provided to a company against the range of revenues it generates.

Subscribe to watch

Access this and all of the content on our platform by signing up for a 7-day free trial.

Lachlan Tait

Lachlan Tait is a lawyer specialising in renewable energy and project finance, and has been for 15 years. For the last 5 years he has worked in-house with renewable energy developers active across a range of jurisdictions, including both developed and emerging markets. He has participated in the negotiation, documentation and closing of numerous renewables project financings, involving a wide range of lenders including smaller national banks and international commercial banks.

There are no available Videos from "Lachlan Tait"