Security in project finance transactions

Principles of security in project finance transactions

Project finance is a type of secured lending.

Some of the reasons for taking security in a project finance transaction are the same as the reasons for taking security in any other type of commercial finance transaction, including:

1. •

   giving the lenders priority over unsecured creditors of the borrower

2. •

   giving the lenders a better chance of recovering their money in an insolvency scenario

3. •

   giving the lenders the right to appoint a receiver or administrator if permitted by the laws of the relevant jurisdiction (for the meaning of ‘relevant jurisdiction’, see Practice Note: Security in project finance transactions—Onshore and offshore security—relevant jurisdictions. Also, see Practice Note: Enforcement—debentures and floating charges), and

4. •

   providing a way for the lenders to control the borrower's (and any other security provider's) assets

Security in a project finance transaction has both defensive and offensive functions—its defensive role being to protect the project assets by ensuring