Project finance glossary index by desk

This project finance glossary index curates glossary entries for limited-recourse lending repaid from project cash flows. Groups cover ratios, borrower architecture, project contracts and security terms used on bank PF desks.

Cover ratios and cash control

• Project Finance: Project finance is limited-recourse lending repaid from a project's cash flows and secured on its assets and contracts.
• Debt Service Coverage Ratio (DSCR): Debt service coverage ratio (DSCR) measures cash flow available for debt service relative to scheduled principal and interest.
• 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.
• 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.
• Debt Service Reserve Account: A debt service reserve account holds cash sized to cover a defined period of scheduled principal and interest if operating cash falls short.
• Cash Waterfall: A cash waterfall is the contractual order in which project revenues are applied to costs, debt service, reserves and distributions.
• Cash Sweep: A cash sweep applies surplus project cash, after operating costs and scheduled debt service, to mandatory prepayment of principal.
• 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.
• Financial Close: Financial close is the point when project and financing documents are signed, conditions precedent are met, and funding becomes available.
• Commercial Operation Date: Commercial operation date is when construction is successfully completed and the project is ready to begin regular commercial operation.

Borrower, sponsor and syndication

• 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.
• Non Recourse: Non-recourse financing gives lenders no direct sponsor guarantee, so repayment rests on project or property cash flows and secured assets.
• Limited Recourse: Limited recourse allows defined sponsor support, often through construction, while repayment still rests primarily on project cash flows.
• Completion Guarantee: A completion guarantee is sponsor support that backs project completion and related debt obligations through the construction period.
• Common Terms Agreement: A common terms agreement sets shared representations, undertakings and defaults across multiple project-finance facilities.
• Intercreditor Agreement: An intercreditor agreement sets ranking, payment waterfalls and enforcement controls among creditors in the same financing.
• Syndication: Syndication is the process of arranging a loan among multiple lenders so commitment size, risk and funding are shared under one facility.
• Mandated Lead Arranger: A mandated lead arranger is the bank appointed to structure, negotiate and syndicate a loan facility for the borrower.
• Facility Agent: A facility agent is the administrative bank that channels payments, notices and compliance information between borrower and syndicate.

Contracts, security and multilaterals

• EPC Contract: An EPC contract is an engineering, procurement and construction agreement under which a contractor delivers a project on a turnkey basis.
• Offtake Agreement: An offtake agreement is a contract under which a buyer commits to purchase a project's output, often anchoring project-finance revenues.
• Direct Agreement: A direct agreement is a tripartite contract giving lenders notice, cure and step-in rights over key project contracts.
• Step-In Rights: Step-in rights let lenders or their nominee temporarily perform a project company's obligations under key contracts to cure default.
• Independent Engineer: An independent engineer is a technical adviser that reviews design, construction and performance for project-finance lenders.
• Security Package: 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.
• Pari Passu: Pari passu means ranking equally: lenders share the same priority of payment or security among themselves and relative to other unsubordinated creditors.
• Negative Pledge: A negative pledge stops the borrower granting security over assets to other creditors, or requires equal security for existing lenders.
• Cross Default: A cross default clause makes a default under other financial indebtedness an event of default under the facility, preserving parity among creditors.
• IFC (International Finance Corporation): IFC (International Finance Corporation) is the World Bank Group institution that finances and mobilises private sector investment in emerging markets.
• EBRD: EBRD is the European Bank for Reconstruction and Development, a multilateral bank financing transition to market economies in its regions of operation.
• MIGA: MIGA is the Multilateral Investment Guarantee Agency, the World Bank Group insurer of non-commercial risks for investment into developing members.
• Political Risk Insurance: Political risk insurance covers investors and lenders against defined non-commercial risks such as expropriation and transfer restriction.