A Practical Guide to Transactional Project Finance: Basic Concepts, Risk Identification, and Contractual Considerations
A Practical Guide to Transactional Project Finance: Basic Concepts, Risk Identification, and Contractual Considerations By Scott L. Hoffman* The ability of one lender, or a group of lenders acting as a syndicate, to make a single loan to finance the entire development, site acquisition, construction, and initial operation of a project offers a unique marketing advantage in the competitive financial services industry. In many cases, the large amount of capital needed to finance a project strains the ability of many corporations to borrow money and fund the equity contributions needed, just as it strains the lending levels for many banks. The need for enormous debt and capital, coupled with the risks involved in large project development, often make a project financing1 one of the few available financing alternatives in the energy, resource recovery, mining, transportation, resort, and retirement care industries. *Mr. Hoffman is a member of the New York and District of Columbia bars and practices law with Nixon, Hargrave, Devans & Doyle in New York and Washington. Editor's note: Baird C. Brown of the Pennsylvania bar served as reviewer for this article. 1 . The term "project finance," or "segregated finance" as it is sometimes called, is generally used to refer to the arrangement of debt, equity, and credit enhancement for the construction or refinancing of a particular facility in a capital-intensive industry, in which lenders base credit appraisals on the projected revenues from the operation of the facility, rather than on the general assets or the corporate credit of the promoter of the facility, and in which they rely on the assets of the facility, including the revenue-producing contracts and cash flow, as collateral for the debt.
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