Project Finance Security and Limited Recourse

What are the two categories of security?

• The first is a set of formalised legal security interests, such as mortgages, pledges and other security instruments over the project assets, which include the shares in the SPV, its bank accounts, project revenues, the physical assets, the contracts and so on.
• Second, these security interests are supported by direct contractual rights for the lenders to intervene in, and if necessary take over, all of the project contracts.

What are project revenues?

The fact that project finance is non-recourse means that the debt is serviced only from project revenues. This explains why lenders are so concerned with securing all elements of the project. If there is a problem with the project, the lenders can exercise their rights to take over the project and deal with it as they see fit. Project finance security structures provide a means to save a troubled project and its revenues. In renewable energy project financings, the split between debt and equity is generally between 60:40 and 80:20. This can of course be contrasted with corporate financing, where debt finance is provided to a company against the range of revenues it generates.