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Glossary

Project finance terms

61 terms

Definitions of project finance terms for bank credit desks: cover ratios, security packages, offtake and completion, each cited to the official record.

A

  • Adverse media screening

    Adverse media screening reviews public news and open sources for financial crime, corruption or other serious misconduct linked to a customer or owner.

B

  • Basel III

    Basel III is the Basel Committee's post-crisis package of minimum capital, leverage and liquidity standards for internationally active banks.

  • Beneficial ownership

    Beneficial ownership identifies the natural persons who ultimately own or control a legal person or on whose behalf a transaction is conducted.

  • Bookrunner

    A bookrunner is the syndication role that controls primary distribution of a loan and the final composition of the lending syndicate.

C

  • Cash sweep

    A cash sweep applies surplus project cash, after operating costs and scheduled debt service, to mandatory prepayment of principal.

  • Cash waterfall

    A cash waterfall is the contractual order in which project revenues are applied to costs, debt service, reserves and distributions.

  • Commercial operation date (COD)

    Commercial operation date is when construction is successfully completed and the project is ready to begin regular commercial operation.

  • Common terms agreement

    A common terms agreement sets shared representations, undertakings and defaults across multiple project-finance facilities.

  • Completion guarantee

    A completion guarantee is sponsor support that backs project completion and related debt obligations through the construction period.

  • Country risk

    Country risk is the risk that a sovereign or host-country environment prevents or delays repayment of external debt or cross-border obligations.

  • Covenant breach

    A covenant breach is a failure to meet a financial or operational undertaking in a loan agreement, often constituting or leading to an event of default.

  • Cross default

    A cross default clause makes a default under other financial indebtedness an event of default under the facility, preserving parity among creditors.

  • Currency inconvertibility

    Currency inconvertibility is the inability to convert local currency into hard currency, or to transfer hard currency abroad, due to government action.

  • Customer due diligence

    Customer due diligence is the anti-money-laundering process to identify and verify customers and beneficial owners and monitor the business relationship.

D

  • Debenture

    A debenture is a corporate instrument that creates security over a company's assets, commonly combining fixed and floating charges in favour of lenders.

  • Debt service coverage ratio (DSCR)

    Debt service coverage ratio (DSCR) measures cash flow available for debt service relative to scheduled principal and interest.

  • Debt service reserve account (DSRA)

    A debt service reserve account holds cash sized to cover a defined period of scheduled principal and interest if operating cash falls short.

  • Direct agreement

    A direct agreement is a tripartite contract giving lenders notice, cure and step-in rights over key project contracts.

E

  • EBRD

    EBRD is the European Bank for Reconstruction and Development, a multilateral bank financing transition to market economies in its regions of operation.

  • EIB (European Investment Bank)

    The European Investment Bank (EIB) is the EU's lending arm and a major multilateral financier of climate, infrastructure and development investment.

  • EPC contract

    An EPC contract is an engineering, procurement and construction agreement under which a contractor delivers a project on a turnkey basis.

  • Equator Principles

    The Equator Principles are a voluntary environmental and social risk framework used by financial institutions when financing large projects.

  • Expropriation risk

    Expropriation risk is the risk of loss from host-government measures that deprive an investor or lender of ownership, control or essential rights.

F

  • Facility agent

    A facility agent is the administrative bank that channels payments, notices and compliance information between borrower and syndicate.

  • FATF

    FATF is the Financial Action Task Force, the inter-governmental body that sets and monitors global AML and counter-terrorist financing standards.

  • Financial close

    Financial close is the point when project and financing documents are signed, conditions precedent are met, and funding becomes available.

  • Fixed and floating charge

    A fixed and floating charge is security over specific assets plus a fluctuating asset class, common in UK company and project lending.

  • Force majeure

    Force majeure is an extraordinary impediment beyond a party's reasonable control that prevents or impedes contractual performance under agreed conditions.

I

  • IFC (International Finance Corporation)

    IFC (International Finance Corporation) is the World Bank Group institution that finances and mobilises private sector investment in emerging markets.

  • Independent engineer

    An independent engineer is a technical adviser that reviews design, construction and performance for project-finance lenders.

  • Intercreditor agreement

    An intercreditor agreement sets ranking, payment waterfalls and enforcement controls among creditors in the same financing.

  • Interest coverage ratio

    Interest coverage ratio measures income available to meet interest costs, used in CRE and project finance credit assessment.

K

  • Know your business (KYB)

    Know your business (KYB) is customer due diligence applied to legal-person customers, including ownership, control and nature of business.

  • Know your customer (KYC)

    Know your customer (KYC) is the industry label for identifying and verifying customers and beneficial owners under customer due diligence rules.

L

  • Legal entity identifier (LEI)

    A legal entity identifier is a unique 20-character code that identifies a legal entity in financial markets under the ISO 17442 standard.

  • Limited recourse

    Limited recourse allows defined sponsor support, often through construction, while repayment still rests primarily on project cash flows.

  • Loan life cover ratio (LLCR)

    Loan life cover ratio (LLCR) compares the NPV of cash flow available for debt service over the remaining loan life with outstanding debt.

M

  • Mandated lead arranger

    A mandated lead arranger is the bank appointed to structure, negotiate and syndicate a loan facility for the borrower.

  • Material adverse change

    A material adverse change clause treats a significant deterioration in the borrower's condition, business or prospects as a default or drawstop.

  • MIGA (Multilateral Investment Guarantee Agency)

    MIGA is the Multilateral Investment Guarantee Agency, the World Bank Group insurer of non-commercial risks for investment into developing members.

  • MIGA cover

    MIGA cover is Multilateral Investment Guarantee Agency political risk insurance and credit enhancement for investment into developing members.

N

  • Negative pledge

    A negative pledge stops the borrower granting security over assets to other creditors, or requires equal security for existing lenders.

  • Non-recourse

    Non-recourse financing gives lenders no direct sponsor guarantee, so repayment rests on project or property cash flows and secured assets.

O

  • Offtake agreement

    An offtake agreement is a contract under which a buyer commits to purchase a project's output, often anchoring project-finance revenues.

  • Offtaker

    An offtaker is the buyer that contracts to purchase a project's output, anchoring the revenues used to support project finance debt.

P

  • Pari passu

    Pari passu means ranking equally: lenders share the same priority of payment or security among themselves and relative to other unsubordinated creditors.

  • Political risk insurance (PRI)

    Political risk insurance covers investors and lenders against defined non-commercial risks such as expropriation and transfer restriction.

  • Project finance (limited recourse)

    Project finance is limited-recourse lending repaid from a project's cash flows and secured on its assets and contracts.

  • Project life cover ratio (PLCR)

    Project life cover ratio (PLCR) compares the NPV of cash flow available for debt service over remaining project life with outstanding debt.

  • PSC register

    The PSC register records people with significant control of a UK company, LLP or eligible Scottish partnership, including ownership and control conditions.

R

  • Restructuring vs rescheduling (Paris Club)

    Restructuring vs rescheduling contrasts broader debt treatment, including reduction, with changing payment terms on existing claims.

  • Risk participation

    A risk participation is an unfunded transfer of credit risk on a loan, where the participant reimburses the grantor if the borrower fails to pay.

S

  • Sanctions screening

    Sanctions screening checks customers, counterparties and transactions against official sanctions lists to identify prohibited parties or dealings.

  • Security package and security agent

    A security package is the collateral, assignments and support arrangements that secure lender claims over project or property cash flows and assets.

  • Security trustee

    A security trustee holds and enforces shared security on behalf of syndicated lenders and other secured finance parties.

  • Special purpose vehicle (SPV)

    A special purpose vehicle (SPV) is a ring-fenced project company that holds assets and borrows against project cash flows.

  • Sponsor

    A sponsor is the equity party that owns and supports a project or CRE borrower, often through an SPV, with limited or defined recourse to lenders.

  • Step-in rights

    Step-in rights let lenders or their nominee temporarily perform a project company's obligations under key contracts to cure default.

  • Sub participation

    A sub-participation transfers the economic risk and return of a loan to a participant while the grantor remains lender of record to the borrower.

  • Syndication

    Syndication is the process of arranging a loan among multiple lenders so commitment size, risk and funding are shared under one facility.

U

  • Ultimate beneficial owner (UBO)

    An ultimate beneficial owner is the natural person who ultimately owns or controls a legal entity, or on whose behalf a transaction is conducted.