In a project-financed transaction, lenders want to ensure that the source of income is protected and that the project works as it is supposed to, so that the lenders get their loan back and the project company does not default on their loan. Lenders therefore require that there are a number of practical control mechanisms of the company, such as. B restrictions on what the project company can do without the approval of the lender, and the ability to join the management of the project company in case the project does not work, and that they provide security on the project assets. In addition to accepting that the counterparty agrees not to terminate if it has the right to do so under the project document, it will also agree that the milestone process may be triggered by lenders providing a notice of default from a project company under the Facility Agreement, with the collateral being applied or the loan being accelerated. Equity investors: Lenders or project promoters who do not expect to play an active role in the project. In the case of lenders, in addition to lending debt, they have an interest in obtaining a better return if the project is successful. In most cases, any equity investment is accompanied by an agreement that allows the investor to sell their shares to the project promoter if the equity investor wishes to leave the project. The project promoter may also have the opportunity to buy back the shares. Host governments/contracting authorities: The government of the country where the project is based is likely to be involved in the issuance of permits and permits at the beginning and throughout the life of a project. The client is the public municipality that contracts the project contract with Projectco. Service Agreements: Projectco enters into service agreements with service providers and communicates its service obligations under the project agreement to these contractors.
As mentioned above, service providers provide guarantees in favour of the authority and the authority has registration rights in certain circumstances – again subject to the rights of lenders. In the event of termination of the concession contract, lenders have a guarantee on the project assets. However, the project assets are unlikely to be worth the value of the outstanding debt. Therefore, lenders often need some form of right to take over the project if the project company has not fulfilled its obligations and the licensor intends to terminate the concession contract or purchase agreement. The milestone provisions give lenders the right to enter into the rights and obligations of the project company from the project documents. Lenders will want to ensure that the grantor is able to proceed with the project after intervening. However, the lenders themselves will not want to be involved in the actual intervraiment. They usually hire a “replacement unit” to assist with their responsibility. As a general rule, there is no debate as to whether a direct agreement should be concluded in principle.
However, it is still common for some provisions to be negotiated intensively, and it often seems that disproportionate time is spent on such a short agreement. To my knowledge, no one has ever intervened under a direct agreement, and there would be practical difficulties in doing so, such as.B. the novification of all project contracts. .