Financiers’ security and quasi-security Security Typically, lenders in a UK project financing will take a fixed and floating charge over the assets of the project company and also a charge over its shares. If the lenders need to enforce their security, this structure helps them to take control of the project, in order to preserve its revenue-generating capacity and, if that fails, ultimately to enforce against the project’s assets (although the residual value of the assets on a breakup basis is typically relatively insignificant). Taking comprehensive security over the project company’s assets also helps to protect the project company from any third party claims. Quasi-security are designed to function in tandemwith their security. In particular, they will have direct agreements with the key counterparties of the project company (eg the purchaser/offtaker and the supply chain contractors) which will include step-in rights. Step-in rights are used to permit lenders to take over a project contract, by The lenders will also typically have the benefit of contractual structures which Regulated Asset Base model In privatised regulated industries (eg energy, water, airports, rail), infrastructure is financed using structures which are linked to the nature of the economic regulation (ie the regulatory asset base – RAB – model). Similar structures are used to finance assets which are not subject to economic regulation (eg ports), but which are considered to have similar economic characteristics and risk profile. Property finance Real estate developments may be financed
‘stepping in’ to the shoes of the project company in order to remedy the situation if, due to a default by the project company, the relevant project contract is at risk of termination. They also entitle the lenders to transfer the relevant project agreement to a nominee or a replacement project company in the event that the lenders have to enforce their security. Direct agreements may also contain undertakings or collateral warranties in favour of the lenders from counterparties relating to performance of their obligations in respect of the project. The lenders will also require all the project cashflows to pass through designated bank accounts and will enter into an accounts agreement with the account bank which will give the lenders various rights in relation to the accounts, including the right to take control of the accounts and if necessary direct the application of proceeds if the project company is not complying with its obligations. Robert Franklin Legal Director, London T: +44 (0)20 7876 4242 E: robert.franklin@clydeco.com under a range of structures and from a variety of sources. Financing may be provided by equity, bank loans and subordinated debt, allowing a borrower to purchase and/or develop a property. The financing will be secured against the property being purchased and/or developed and the cash flow generated by the property (ie rental income), once the development has been completed. Emphasis is placed on monitoring the property throughout the development phase and thereafter ensuring that the value and condition of the property are maintained.
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