Projects and parties

What is project finance?

A project financing is a financing transaction where loans are advanced to cover the construction and operation costs of a project, and the recourse of lenders for repayment of those loans is limited to revenues and assets relating to the project. For that reason, it is also referred to as ‘non-recourse financing’ or ‘limited recourse financing’ (the latter probably being the more accurate label since it is usual for sponsors to provide some form of credit support to the lenders). In addition to debt service, the revenue generated by the project must be sufficient to cover ongoing operating costs and deliver a return on investment to the project sponsors.

The 'project' commonly involves:

1. •

   constructing and/or operating something tangible like a road or a school

2. •

   acquiring or refinancing an existing asset or facility, or

3. •

   exploiting something tangible like oil or gold

Project finance can also be used for an arrangement where a concession to run an existing asset