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Security Structures in Project Finance

To adapt participants’ understanding of security in corporate lending to the project financing context

Debt Capital Markets Training Course

A one-day course

  • It is essential that this subject is approached with the flexibility of thought and an ability to adapt to the specific of the individual case. A mechanical approach would be hazardous;
  • The training has a strong practical bias;
  • There is an intention to customise content to the participants’ relevant jurisdictional focus;
  • Participants will take away a substantial body of written materials for further investigation and research;
  • The webinar will be accompanied by videos prepared by the trainer

  • To adapt participants’ understanding of security in corporate lending to the project financing context (see Course Summary);
  • To illustrate the differences in security structuring across different industry sectors;
  • To provide an understanding of the contents of a typical fixed & floating charge;
  • As security is to assist lenders salvaging the project, how the dealing with defaults was handled in a variety of cases, across different jurisdictions and different industry sectors.

Session 1 – The types of security

  • Big picture
    • Illustration of the interface of all of the project contracts
    • Illustration of the various types of security structure
  • Terminology – contradictions in usage
  • The limitations of security protection in project financings
  • Why failed project financings very rarely go into insolvency
  • Possessory security
    • Pledges
    • Liens
    • Bankers lien
    • Powers of sale
  • Title
    • Common law mortgages
  • Proprietary security
    • Statutory mortgages
    • Equitable mortgages
    • Fixed and floating charges, mortgage debentures
  • Hypothecation
    • Bills of lading
    • Warehouse receipts
    • Trust receipts
  • Choses in Action
    • Receivables
    • Romalpa clauses
  • Assignments
    • Operational contracts
    • Project accounts
    • Insurance policies
      • Non-vitiation
      • Cut-through agreements 

Session 2 – Documentation and Jurisdiction Differences

  • Layout of Fixed & Floating Charge
    • Covenant to pay (the trigger)
    • The charging clause
    • Negative pledge
    • Covenant to deposit assets
    • Covenant for further assurances
    • Power of sale
    • Power to appoint a receiver
    • Chargor covenants
    • Power of attorney
    • Ruling off accounts
    • Combination & setoff
    • No prejudice
    • Severance
  • Customisation of course content to the relevant jurisdictions 

Session 3 – Application of the Concepts and Structures

  • Typical structures in particular sectors – illustrations & explanation
    • Social infrastructure
    • Transport infrastructure
    • Telecoms
    • Thermal power
    • Renewables
  • Extractive industries – special considerations
    • The contagion effect
    • Unincorporated joint ventures
    • Bankruptcy-remote vehicles
  • Other Complications
    • The supremacy of insolvency law vs contract law – impact on security
    • Conflict of laws – loan agreement vs security contracts
    • Credit enhancements
      • Monoline insurance
      • Guarantees
      • Setoff 

Session 4 – A series of case studies of Failed Projects and how Recovery was Achieved or Attempted

  • A European transport infrastructure project
  • A middle-eastern energy project
  • An Australian mining project
  • A South American pipeline project
  • A European power generation project
  • A middle Eastern telecoms project

The trainer has a unique blend of experience in Law, Corporate Banking, Investment Banking, Corporate Financial Management, General Management and Workout.  He has gained a worldwide reputation for the quality and depth of his training courses which have been developed and presented over 20+ years.
  • He trained as a lawyer at Cambridge and the Middle Temple and was called to the English bar.
  • 5 years with an American bank (Chase), the world’s largest financier of oil & gas projects, as a corporate relationship manager in New York and London. In the 5 years in this role he was exposed to the development of the North Sea projects and petrochemicals.
  • 6 years: investment banking in Hong Kong and London (Wardley – the investment bank subsidiary of HSBC), primarily involved in mergers and acquisitions and corporate restructurings.
  • 6 years: CFO of a public group with a joint head office in the United States and Australia. In this role he was engaged in some 35 acquisitions, over 20 equity raisings and a large number of complex financings, many of them structured on a limited recourse basis;
  • 18 months: responsible for the ‘workout’ of a company in severe financial difficulties, being appointed as General Manager by KPMG.
For the past 20 years the trainer has acted as an independent consultant and financial trainer.  On the consulting side he has been primarily involved in the financial modelling and structuring of power generation, LNG, mining, and petrochemical projects, as well as undertaking project vetting for a number of clients.  On the training side he conducts training courses in Financial Modelling, Loan Documentation, Project Finance and Corporate Finance, Corporate Valuation and M&A.

There is a fundamental difference between the rationale for lenders taking security in corporate lending as opposed to the taking of security in project finance. In corporate lending, the objective is to improve the cents-in-the-dollar recovery if the borrower should enter into financial difficulties. The reality in project finance is that in nearly all cases:
  • The only tangible assets over which security is taken, are the assets owned by the SPV and developed with the borrowed monies
  • Unless the assets are moveable, lenders confronted with an Event of Default cannot improve their position – they already have first-ranking positions on the project’s assets and cashflows
  • The value of those assets is a function of the future cashflow they can generate – and if the project’s one-and-only cashflow is in default, the value of the assets that generate that cashflow is unlikely to come close in recovering the exposure
  • The borrower has no other sources of cashflow to cover the gap between exposure and security
In some projects, particularly in extractive industries, there are deliberate efforts in structuring to ensure that lenders do not get tangible security. Project finance is, after all, the purest form of cashflow lending. Accordingly, the subject matter of security in project finance transactions is nuanced, and a number of different structures have evolved for different types of projects. Adding to the complexity, the actual procedures for perfecting the security is jurisdictionally specific. Therefore, it is proposed that if participants identify the jurisdictions that are relevant to their activities in advance of the sessions, the course content will include some degree of adaptation to their nominated jurisdictions.

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