Project accounts and the accounts agreement

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

  • Project accounts and the accounts agreement
  • The purpose of project accounts
  • The account bank in a project finance transaction
  • Common types of project accounts
  • Disbursement account
  • Proceeds account
  • Operating account
  • Debt service reserve account
  • Maintenance reserve account
  • Insurance proceeds or compensation account
  • More...

Project accounts and the accounts agreement

In a typical project finance transaction, the lenders rely heavily on the revenues generated by the project for repayment of the loan.

As a result, project finance lenders will impose strict restrictions on how the project company uses its cash. This Practice Note examines how the lenders commonly impose these restrictions in project finance transactions.

The purpose of project accounts

Project finance lenders usually require the project company to establish a number of bank accounts (known as the 'project accounts') and prohibit the project company from opening any other bank accounts (see Practice Note: Project finance—undertakings (covenants)).

Each project account has a specified purpose relating to the project. By restricting the project company's bank accounts in this way, the lenders are able to:

  1. monitor the cash flows through the project and regulate its allocation

  2. ensure that the project company maintains adequate reserves to cover contingencies (ie the costs which arise when the project doesn't go according to plan), and

  3. prevent any leakage of cash out of the project which would bypass the lenders

The project company's cash assets are critical to the lenders and the lenders will generally insist on taking security over the project accounts and the balances in them. For information on taking security over cash deposits, see Practice Note: Taking security over cash deposits in bank accounts.

Like any commercial

Popular documents