A beginner’s guide to project finance
A beginner’s guide to project finance

The following Banking & Finance guidance note provides comprehensive and up to date legal information covering:

  • A beginner’s guide to project finance
  • Key features of project finance
  • Bankability
  • Legal due diligence
  • Environmental and social due diligence
  • Insurance due diligence
  • Tax and accounting due diligence
  • The financial model
  • Bond market
  • Equity provided by project sponsors
  • more

The UK is leaving the EU on Exit Day (as defined in the European Union (Withdrawal) Act 2018). This has an impact on the information regarding public procurement in this Practice Note. For guidance, see News Analyses: Deal or no deal―how will Brexit impact public procurement? and Commercial: Brexit and Public procurement.

In addition, the UK government has published high level guidance on public procurement post-Brexit:

  1. Public-sector procurement under the EU Withdrawal Agreement, and

  2. Public-sector procurement after a no-deal Brexit.

This Practice Note sets out a basic introduction to project finance focusing on:

  1. due diligence and ‘bankability’

  2. sources of finance for projects

  3. project risk and allocation

  4. types of project

  5. the main project parties

  6. the finance parties

  7. key finance documents

  8. key finance terms

  9. key project documents

  10. security and quasi-security in project finance transactions

  11. PFI/PPP projects and procurement

  12. the Equator Principles, and

  13. green bonds

Key features of project finance

The term ‘project finance’ generally refers to the debt element of the funding for a project.

The ‘project’ commonly involves:

  1. constructing and/or operating something tangible like a road, bridge or a school, or

  2. exploiting something tangible like gas, oil or gold

The Basel II: International Convergence of Capital Measurement and Capital Standards framework (Basel II) defines project finance as:

‘a method of funding in which the lender looks primarily to the revenues generated by a single project,