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
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)
3
Q
Types of debt
A
- senior debt
- has seniority over all sources of debt in the event of default (get paid first) - mezzanine debt
- has priority only over equity but after all other creditors
4
Q
Five types of financing arrangements
A
- completion and quality assurance arrangements
- for projects in which sponsors provides technology and expterise to finalize project - raw material supply arrangements
- for projects in which sponsors required to guarantee supply of raw materials - output or service purchase arrangements
- for projects where sponsors required to purchase all the output or services - completion, quality assurance and purchase agreements (sponsor responbile for force majeour)
- Cash flow guarantee arrangements