The following Banking & Finance practice note provides comprehensive and up to date legal information covering:
Due diligence is an important part of any commercial finance transaction but it is absolutely critical in project finance transactions because projects are inherently risky (see Practice Note: Project risks and risk allocation).
Many projects share certain key areas of focus for the due diligence process. This Practice Note provides a summary of those areas and guidance on the type of information that the lenders will require.
Due diligence in a typical project finance transaction covers a broad spectrum of issues including:
legal and political matters
environmental and social matters
insurance requirements, and
tax and accounting issues
The scope of the due diligence reports, particularly the legal report, is often heavily negotiated by the lenders and the sponsor.
The lenders will be keen to ensure that all aspects of the project have been adequately investigated and understood, while the sponsor (who is likely to be responsible for the costs) will want to impose tight controls on the process.
The scope of due diligence may be limited by agreeing that contracts will only be reviewed if they are above a certain value rather than reviewing every single document relating to the project. Lenders are likely to be more willing to compromise on the scope of the due diligence if the sponsor has an experienced project management team which they
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