Project finance
The term project financing is an economically and legally definable mostly themselves understood refinancing business unit of life limited funding. The project financing thus forms the counterpart to the classic corporate credit (corporate -credit- rating- based- financing ). The financial resources are therefore not applied in the classical form of directed on the creditworthiness of the customer order financing still in the form of project-based and directly aimed at the creditworthiness of the participating sponsors funding but provided sui generis, depending on the expected project cost.
Typically, a project financing, the characteristics described below:
From the high specificity of project- funded project follows in comparison to the amount of the acquisition costs regularly for a disproportionately low potential liquidation proceeds. For example, assume that in the case of early termination of a structurally already completed infrastructure project only very small residual income to be derived from the sale of individual items of property, plant and equipment. In project financing therefore stand as security for the repayment of loans granted not the project assets and their potential values busting at the forefront of lending decisions, but foreign investors are primarily oriented towards the debt service capacity of the expected future cash flows. Unlike the traditional balance sheet lending -related- or asset -based financing, therefore the balance sheet assets of the project company plays only a minor role. A key risk for the lender in a project financing represents the risk of completion ( completion risk), because the project can only generate a positive cash flow when it is completed and meets its intended tasks.
Explicit risk sharing ( risk sharing )
The risk-sharing describes the allocation of project risks between the various project participants. After the general efficiency principle of risk allocation, the individual project risks should be allocated to the Participating possible that this can best handle due to their individual risk -related know-how. The project tries to implement funding by about responding directly to a project performance risks related to the respective support the performance and the remaining funding risks with respect to phase the equity and debt capital and allocated to third parties. Depending on the project-specific risk situation and the risk appetite of financiers, the prospectively oriented cash-flow -related- lending be fitted against the equity investors with additional rights of recourse debt (recourse ) to the lender. Here, the three stages of the non -recourse, Limited -recourse and full recourse financing can be distinguished. While in practice largely unusual non -recourse financing recourse of the lender is limited to the equity contribution of the promoters, describes the typical project finance Limited -recourse financing, the time, in terms of amount or situation admission -related limited liability of the parent company over its shareholders insert. The Extremalausprägung of full -recourse financing breaks down due to the full recourse to the equity investors, the project financing principle of risk-sharing and is therefore not the project financing in the strict sense, but the traditional recipients on the creditworthiness of the parent company corporate credit- rating- based- financing associate. In the course of explicit risk allocation, equity ratios can be achieved which are unusually low rate especially for Anglo-American relations as. The individual interests of cross- main concern of the risk sharing is to establish a financing structure that allows project participants to not be forced upon the occurrence of project- inherent risks to an immediate termination of the entire project.
External balance sheet financing ( off- balance-sheet financing )
The establishment of the project company, with a suitable choice of the participation quota and voice mean that the sponsors in accordance with the relevant accounting rules for them, only the respective share is accounted for on the equity of the company. Since all project loans at these so-called equity method type of consolidation is reflected solely in the separate balance sheet of the project company, is waived for the sponsors with in the course of the full or proportionate consolidation due to the especially compared to the U.S. going-concern business disproportionately high levels of debt of project companies entering deterioration of the passive side vertical balance sheet structure. Since participation in a project company at equity would be recorded in the fixed assets, the horizontal and the asset side vertical balance sheet ratios are additionally protected. However, this so-called off - balance-sheet effect can be canceled from the Limited -recourse to the sponsors because passivierungspflichtiger liabilities. Arising in the context of limited -recourse financing contingencies are also basically make a note in the Appendix. The concept of off- balance-sheet financing is therefore not translate into its literal absolute truth, but to interpret a phenomenon particularly low impact of equity investments on the balance sheet of the project sponsor.
It must therefore be noted that only the specificity of the financing of an economically and usually legally definable, self refinancing business entity of limited life, the cash-flow -related- lending and the Risk sharing can be regarded as constituent features of the project financing. The off - balance-sheet financing has only differentiating character.