Typical security package in a project finance transaction

Security in a project finance transaction is particularly important because the borrower is typically a special purpose entity which is set up specifically to develop and operate the project. In such cases, the borrower will have no credit history and its only assets are likely to be the project assets.

Some of the reasons for taking security in a project finance transaction include:

• • giving the project lenders priority over unsecured creditors of the borrower (typically the project company);
• • giving the project lenders a better chance of recovering their money in an insolvency scenario;
• • giving the project lenders the right to appoint a receiver or administrator if certain conditions are met; and
• • providing a way for the project lenders to control the borrower’s and any other security provider’s assets.

This guidance note outlines the key assets of a project, looks at what to consider when putting together a security package for a project finance transaction, and overviews the types of security in a project finance transaction. Guidance is also provided on possible alternatives to taking security, and matters relating to onshore and offshore security.

See Typical security package in a project finance transaction.