Project finance—events of default
Project finance—events of default

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

  • Project finance—events of default
  • Purpose of events of default in a project finance transaction
  • Where to start with drafting events of default in a project finance transaction
  • Types of events of default in a project finance transaction
  • Events of default relating to project parties
  • Events of default relating to project documents
  • Events of default relating to the project and its ownership
  • Consequences of an event of default in a project finance transaction
  • Common negotiating points for events of default in a project finance transaction
  • Review events and step-in events in project finance transactions

Many of the usual events of default for a typical syndicated loan facility will also apply (in some form) to a project finance transaction. For information about those events of default, including what events of default are, see Practice Note: Events of default.

This Practice Note examines the types of additional events of default which may apply in a project finance transaction.

Purpose of events of default in a project finance transaction

Events of default give lenders a mechanism under which they can, if they choose, take action against a borrower for breach of its obligations under a facility agreement or if certain other events occur. This is preferable to relying on general contract law for remedies for breach of the terms of the agreement. There are advantages for all parties in listing out the events of default rather than the lenders having a generic right to act on any breach. These are:

  1. certainty as to when the lenders can take action and up-front agreement on this from the borrower

  2. the ability to distinguish between more important and less important breaches by including grace periods or materiality qualifications, and

  3. the ability to include events that are not breaches of the loan agreement or other finance documents as events of default

In a project finance transaction, where the lenders are typically solely or largely reliant on the revenues

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