Direct Agreements In Project Finance Transactions

9 April 2021, 6:05 | Uncategorized | Commenti: 0

Suppliers, contractors and customers: These include project equipment suppliers, contractors responsible for the design and construction of the project, and project clients. Direct agreements and security transfers are designed to ensure that the project can continue despite the borrower`s failure, in order to reach an operational phase and generate revenue. Given that both direct agreements and security transfers give lenders some form of intervention, the conclusion of the two documents appears to be a “double security”. One question that might arise is: why would lenders need both? As noted above, the goal of developing a security package is to minimize the risk borne by lenders. An assessment of the characteristics of direct agreements and security transfers, as summarized above, shows that, while these two agreements deal with lenders` rights with respect to project documents, they offer different, complementary and repetitive safeguards. While direct agreements allow lenders to intervene and fulfill the borrower`s obligations in the event of a breach of a project document by the borrower, on the other hand, security transfers offer lenders the opportunity to intervene and enforce the borrower`s rights against the counterparty in the event of a breach of the borrower`s facility agreement. Among the types of projects for which project financing is often used are: insurers: insurers are essential for a project. If there is a disaster affecting the project, sponsors and lenders will look at the insurers to cover the losses. The designated representative may withdraw from termination. This occurs either when a permanent replacement is found, the project is returned to the project company, or the lenders decide that the project cannot be saved. Here, too, it is possible to discuss the extent of the designated representative`s liability for unfulfilled obligations. Contracting consortia can participate in larger projects. As far as liability is concerned, these contractors can be held accountable either in several respects or in solidarity.

Multiple liability means that each contractor is only responsible for its own contribution to the project, while, under joint and multiple liability, each contractor can be sued for the entire commitment and the consortium is then responsible for clarifying the extent of each contractor`s obligations.

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