Project finance is the funding of a specific asset or project where lenders look primarily to the project’s own cash flows and assets for repayment, rather than the broader balance sheet of the sponsor. It usually involves a ring-fenced project company and a defined security package.
It lets sponsors fund large, long-dated assets on a largely non-recourse basis, sharing risk with lenders.
Common in real estate development, infrastructure, energy and data centres.
Project finance is the funding of a specific asset or project where lenders look primarily to the project’s own cash flows and assets for repayment, rather than the broader balance sheet of the sponsor. It usually involves a ring-fenced project company and a defined security package.
Common in real estate development, infrastructure, energy and data centres.
In project finance, lenders rely primarily on the cash flows and assets of a specific ring-fenced project for repayment, whereas corporate lenders look to the borrower’s wider balance sheet. The project usually sits in its own project company with a defined security package, allowing largely non-recourse funding for the sponsor.
Lenders typically require credible long-dated cash-flow forecasts, an adequate debt service coverage ratio, a comprehensive security package over the project’s assets and contracts, and an experienced sponsor. Construction risk, demand or offtake assumptions and the strength of counterparties are scrutinised closely before terms are offered.
Speak to a partner about how this applies to your transaction.
