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The BOOK of JARGON ® Project Finance The Latham & Watkins Glossary of Project Development, Acquisition and Finance Slang and Terminology Second Edition Latham & Watkins operates worldwide as a limited liability partnership organized under the laws of the State of Delaware (USA) with affiliated limited liability partnerships conducting the practice in the United Kingdom, France, Italy and Singapore and as affiliated partnerships conducting the practice in Hong Kong and Japan. Latham & Watkins practices in Saudi Arabia in association with the Law Office of Salman M. Al-Sudairi. In Qatar, Latham & Watkins LLP is licensed by the Qatar Financial Centre Authority. Under New York’s Code of Professional Responsibility, portions of this communication contain attorney advertising. Prior results do not guarantee a similar outcome. Results depend upon a variety of factors unique to each representation. Please direct all inquiries regarding our conduct under New York’s Disciplinary Rules to Latham & Watkins LLP, 885 Third Avenue, New York, NY 10022-4834, Phone: +1.212.906.1200. © Copyright 2013 Latham & Watkins. All Rights Reserved. 2 The purpose of this publication is to assist the newest members of the project finance community in learning to talk the talk of project finance. It is intended to be a “Berlitz Course” for recent law school and business school graduates seeking initiation into the industry, and a desktop reference for not-so-recent graduates. In this book, you will find the key to the secret verbal handshakes that make up the code of the project finance community. We love this stuff. The PF Book of Jargon is one of a series of practice area-specific Books of Jargon published by Latham & Watkins. Latham’s first book in the series was The Corporate and Bank Finance Book of Jargon, from which we have liberally plagiarized, adapting many terms to the project finance context. Subsequent Books of Jargon have been published on European Capital Markets and Bank Finance and Global Restructuring. For those who obsess about consistency (i.e., at least all of the lawyer readers), use of italics herein might seem to follow strange rules or no rules. Typically, terms from the book are italicized the first time they are used in a paragraph, other than their own paragraph. Latham does not italicize very common terms or those that are self-explanatory (which we nevertheless do explain). Aside from that, there is always the stray true inconsistency. The definitions contained in this book are designed to provide an introduction to the applicable terms. The included terms raise complex legal issues about which specific legal advice will be required. The terms are also subject to change as applicable laws and customary practice evolve. As a general matter, The Project Finance Book of Jargon is drafted from a US-practice perspective. The information contained in this book should not be construed as legal advice. If you have suggestions for additional terms or expanded or clarified definitions for the current terms, please send an email to [email protected]. 1 1C/2C/3C Resources: Also known as “contingent resources,” these are those quantities of oil or gas estimated, as of a given date, to be potentially recoverable using established technology or technology under development, but that are not currently considered to be commercially recoverable due to one or more contingencies (note the difference here between contingent resources and Proven, Possible and Probable Reserves, where a market is more likely to exist). These contingencies may include factors such as economic, legal, environmental, political and regulatory matters, or a lack of markets. It is also appropriate to classify as contingent resources the estimated discovered recoverable quantities of oil or gas associated with a project in the early evaluation stage. 1C Resources are classified as “low estimate” — the lowest level of certainty for predicting the level of oil or gas resources. 2C Resources are classified as “best estimate.” 3C Resources are classified as “high estimate,” or the highest level of certainty for predicting the level of oil or gas resources. 10b-5 Rep: Same as a Rule 10b-5 Representation. 122 Endorsement: An Endorsement to Title Insurance for construction loans, issued at the time of borrowings that occur after the initial closing. This endorsement does not “date down” or otherwise modify the effective date of the Title Insurance, but rather describes any additional encumbrances against the property, insures the Lenders that no other encumbrances have been recorded, and insures the priority of the Lender’s existing liens and new advances over any subsequent encumbrances. Even though this Endorsement is sometimes called a “datedown,” it is distinguished from a Datedown Endorsement which changes the date of the policy to the date of the endorsement. 363 Sale: Named after a section of the Bankruptcy Code, an auction-like procedure for a bankrupt entity to sell assets, subject to approval by the judge. Often there is a Stalking Horse Bidder who has already arranged to purchase the assets. If the Stalking Horse Bidder is outbid (which does happen), he gets a breakup fee for his trouble. Acceleration: The end of the line under an Indenture or Credit Agreement. The definitions of Default and Event of Default describe how we get there. Following an Event of Default, the Bondholders (under an Indenture) or Lenders (under a Credit Agreement) have the right to “accelerate” the due date of their debts; in other words, they have the right to declare their Notes or loans immediately due and payable. Bankruptcy and insolvency Events of Default usually automatically lead to Acceleration because otherwise Acceleration would be prohibited under the Automatic Stay. Access: The right to enter and exit a property from a public right of way (a road). Access rights will often require zoning approvals, curb cuts, easements or use agreements with adjoining landowners. A Title Insurance Policy may insure “access” with regard to an insured property if an Access Endorsement is included. If you do not have Access, you are “landlocked” and your property is worth very little. 2 Accordion: A feature in a Credit Agreement that allows the Borrower to increase the maximum commitment amount under a Revolver or to incur additional term loan debt under circumstances specified in the Credit Agreement. The Accordion, however, is not pre-committed financing, and may involve bringing another Lender into the facility. It is really just an advance agreement to share Collateral with additional Lenders in the future if the Borrower can find them on the agreed terms. Also known as an Incremental Facility. You would not see an Accordion in a Project Financing absent a change in the economics, such as would result from expansion of the Project’s Capacity. Account Control Agreement: This is how Lenders in a secured financing Perfect their Security Interest in a Borrower’s deposit accounts and securities accounts. It is an agreement among the Borrower, the Collateral Agent and the bank or securities intermediary where the Borrower holds its deposit or securities account. Absent an Event of Default, the Borrower usually retains full access to the account. Upon an Event of Default, however, the Collateral Agent may notify the deposit bank or securities intermediary to transfer control over the account to the Collateral Agent by no longer accepting instructions from the Borrower. A Security Interest in a securities account is typically Perfected either by means of an Account Control Agreement or by filing a Financing Statement, although a Security Interest Perfected by means of Control has Priority over a Security Interest Perfected by filing a Financing Statement. A Security Interest in a deposit account, by contrast, can be Perfected only by means of an Account Control Agreement or another method of Control, not by filing a Financing Statement. Account Party: The party that asks that a Letter of Credit be issued, and who is responsible for repaying the Issuing Bank when the Letter of Credit is Drawn by the Beneficiary. Additional Insured / Additional Named Insured: Lenders worry that a plaintiff may sue them if their Borrower harms the plaintiff, because the banks have deep pockets. So they have the Borrower add the Lenders, or at least the Collateral Agent and Administrative Agent, on the Borrower’s liability policies as Additional Insureds. The Additional Insureds have the right to be defended by the insurer, and to have any valid and covered claims paid, up to the policy limit. This is done through an Endorsement issued by the Insurance Broker, who makes sure the insurer’s records show all the Additional Insureds. The cost is nominal. Administrative Agent / Admin Agent: The bank that serves as the principal Agent administering the credit facilities documented in the Credit Agreement. The Administrative Agent is responsible for processing interest payments to Lenders, posting notices delivered by the Borrower, and acting as the primary representative of the Lenders in dealings with the Borrower. The Trustee performs an analogous role in Bond land, except that the Administrative Agent is often accorded more discretion over minor Covenants than is a Trustee. 3 Administrative Agent Fee: The annual fee paid to the Administrative Agent for administering a Credit Agreement. Aero-derivative: Combustion gas turbines that are based upon aircraft engine designs. These are very responsive and so are used in Peaker plants and are very compatible with Automatic Generation Control. Compare Frame Unit. Affiliate:Defined slightly differently in different types of agreements, but generally refers to a subsidiary, corporation, partnership or other person controlling, controlled by or under common control with another entity. Affirmative Covenant:Contractual provisions in an Indenture or a Credit Agreement that itemize certain actions the Issuer or Borrower must take to be in compliance.

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