How to finance your Project?

In the actual difficult financial environment with normal banking risk assessments and Basle III regulations it is getting more and more difficult to get a loan from your bank to finance your projects. 

Understanding Project Financing and the Role of Special Purpose Vehicles (SPVs)

Project financing is a funding method tailored for the realization of a specific project, typically through the establishment of a Special Purpose Vehicle (SPV). In this financing structure, the lender relies on the cash flow and income generated by the SPV to repay the debt, while the assets of the SPV serve as collateral for the loan.

In essence, project financing ensures that both debt and equity sources are repaid using the cash flow generated by the project. The financial structure is designed with a focus on the project's self-financing ability, which entails verifying the project's capacity to generate sufficient cash flow to cover debt repayments, achieve a reasonable return on invested equity capital, and create adequate reserves for risk coverage.

Project financing aims to distribute risks and rewards fairly among all project stakeholders (such as sponsors, shareholders, subscribers, suppliers, or operators) and financing entities. This means that the project company's owners are typically responsible for debt repayment up to their share in equity, and may also be required to support the project in specific, pre-defined scenarios.

It is crucial to note that project financing is particularly suited to larger, more specialized transactions that demand a sophisticated, project-based approach basis under MIFID Regulation.

As such, engaging the expertise of professionals in this field is essential for successful project financing execution.

Key Considerations for Successful Project Financing Implementation

Project financing principles can be applied to projects of varying sizes. However, when employing non-recourse or limited recourse financing structures, it is crucial to meticulously analyze the technical, contractual, and financial aspects of the project, preferably together with experienced advisors.

To establish a self-financing project, it is essential to create mutually beneficial contractual relationships with key off-takers and suppliers. Emphasizing reliable agreements regarding project supply and construction is of utmost importance. In line with the limited recourse principle, these contracts should incorporate well-defined obligations regarding supply and payment conditions, adhering to fixed price and quality standards. Utilizing FIDIC (International Federation of Consulting Engineers) standards is recommended for this purpose.

It is important to note that the success of such projects depends not only on the quality of the security, but also on the ability of the involved parties to fulfill their commitments arising from the agreements and to bear any potential sanctions. As a result, it is preferable to engage financially strong parties that can ensure the project's viability and success.

Security

In project financing, the limited recourse principle is typically applied, which means that the security is based on the assets of the financed project. One common example is a pledge on the assets of the project company, which is also known as the Special Purpose Vehicle (SPV). Other forms of security may include pledges on the business share in the project company, specific obligations of the owner, investor, and suppliers, such as advance payment warranties, performance bonds, and retained cash. Additionally, guarantees and cession of specified returns from insurance benefits may be used to secure the financing.

It is important to note that the security structure is tailored to the specific project, taking into consideration its commercial and economic characteristics. This ensures that the security is adequate and appropriate for the project's unique circumstances.

As experts in project financing, we understand that the setup of financing is a crucial part of the process. We emphasize the importance of the preparatory phase, which begins with the identification of the project. Once the project is identified, we provide the client with an indicative term sheet that outlines the basic financing parameters and the framework of the loan terms.

If the client accepts the conditions in the indicative term sheet, we proceed with the obligatory credit application process. The preparatory phase typically takes 4-8 weeks from the admission of the indicative term sheet to approval. Following approval, there is typically a 4-8 week interval for the preparation of credit documentation and compliance with the drawing conditions.

It is important to note that this timeline is based on the assumption that the client is performing all necessary steps in alignment with the conditions set in the indicative term sheet and that no negative actualities have occurred. Once all conditions set in the credit application have been met, the credit disbursement can begin.

At our firm, we understand that the preparatory phase of a project is critical to its success. Upon initial project identification, our clients receive an indicative term sheet that outlines the basic frame of the loan terms and financing parameters. If the client accepts these conditions, we move forward with the obligatory credit application.

The preparatory process typically takes between 4-8 weeks from the admission of the indicative term sheet to approval, followed by another 4-8 week interval for the preparation of credit documentation and compliance with the drawing conditions. This timeline assumes that the client is performing all necessary steps in alignment with the conditions set in the indicative term sheet and that no negative actualities have occurred.

Our team specializes in several key areas, including energy utilization from primary and renewable sources, land and telecommunications infrastructure, public-private partnership projects, environmental initiatives, and productive and processing operations. However, we are prepared to provide sophisticated support for projects in all areas of human activity.

What sets us apart is our ability to assess concrete business plans and provide added value to our clients. We believe in working closely with our clients to understand their specific needs and tailor our financing solutions accordingly.