Ch12 Project financing Flashcards

1
Q

Project financing

A
  • construction and development of large infrastructure and industrial projects
  • capital raised from multiple sources
  • financing is specific to the project only, relying primarily on the project’s cash flows from repayment
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2
Q

non-recourse loan

A
  • loans secured with project’s assets as collateral not from general assets or creditworthiness of sponsors
  • lenders are given a lien on all the project’s assets and will assume control if not paid
  • higher interest rate due to higher risks (cash flow and unexpected higher cost in project)
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3
Q

Types of debt

A
  1. senior debt
    - has seniority over all sources of debt in the event of default (get paid first)
  2. mezzanine debt
    - has priority only over equity but after all other creditors
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4
Q

Five types of financing arrangements

A
  1. completion and quality assurance arrangements
    - for projects in which sponsors provides technology and expterise to finalize project
  2. raw material supply arrangements
    - for projects in which sponsors required to guarantee supply of raw materials
  3. output or service purchase arrangements
    - for projects where sponsors required to purchase all the output or services
  4. completion, quality assurance and purchase agreements (sponsor responbile for force majeour)
  5. Cash flow guarantee arrangements
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