Project financing is a form of raising really huge capital-intensive projects with a long gestation period, in which the lenders depend mostly on assets created for projects as security and the cash flow generated by a business as a source to pay back their dues.
In other words, project financing mainly covers the security of the project itself with little to no redress from project promoters or other parties interested in the project’s creation and execution.
Project Finance Participants and Agreements
The project financing sponsor(s) or developer(s) are the groups that coordinate and usually control the other groups and make an equity investment in a corporation or other organization that owns the project.
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When more than few sponsors exist, they usually form a corporation or a partnership or other agreement whereby the sponsors form a “project company” to own the project and determine their respective obligations with respect to the project
Equity Investors –
New equity partners are also interested in the project, in addition to the sponsors. Those extra investors can include one or more other participants in the project.
Construction Contractor –
The construction contractor can be any individual who signs a contract with a firm for the project’s design, and construction.
The operator maintains a long-term deal with the project manager for day-to-day service and maintenance.
Feedstock Supplier –
This party signs a long-term arrangement with the project company to provide feedstock (i.e., electricity, raw materials, etc) to the project like the feedstock supplier will provide energy for a plant.
Product Off taker –
This party signs a long-term agreement with the project firm to buy all of the electricity, materials, or other commodity produced at the plant.
The lender is often a finance company or group of financial institutions providing the company with a fund to build and construct the project and holding all the assets of the project as a security interest