Direct agreements in project finance transactions

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

  • Direct agreements in project finance transactions
  • What is a direct agreement?
  • The relevance of project documents
  • Direct agreements—key provisions
  • Acknowledgement of the lenders' security
  • Suspension of project counterparty's termination rights and step-in rights
  • Standstill periods
  • Agreement not to amend or vary terms
  • Benefit of direct agreements for project counterparties
  • Representations and warranties by the project counterparty in a direct agreement

Direct agreements in project finance transactions

What is a direct agreement?

Direct agreements are very common in project finance transactions.

A direct agreement is an agreement which gives the lenders to the project direct rights in respect of certain key project documents. Those rights are explained in Direct agreements in project finance transactions—key provisions. For an example of a direct agreement, see Precedent: Form of Contractor Direct Agreement in favour of a lender (for use on infrastructure and energy projects).

The relevance of project documents

The project documents are the contracts which set out each party's responsibilities in relation to a project and the success or failure of most projects often depends heavily on them.

For a project which is not yet built, one of the borrower's most valuable assets will be its rights under the construction contract. Once the project is fully constructed, project documents with significant value tend to include the operation and maintenance contract and any supply and off-take contracts.

Project finance lenders typically take security over all of the project company's rights under the key project documents as part of the security package (see Practice Note: Security in project finance transactions).

In addition to such security, project finance lenders usually expect to have direct contractual relationships with the counterparties to the key project documents. This is achieved by way of direct agreements.

Direct agreements are

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