GENERALLY

Contracts are king in project finance. Perhaps no commercial contracts are more discussed and analyzed in the financing context than those used in project finance transactions. Because nonrecourse and limited recourse project finance are based on the predictability provided by the contract structure, project sponsors and lenders are all interested in the risk allocation and other contract terms.

It is not an overstatement to write that every term of a project finance document is significant for the project participants. Examples of important project finance provisions are

• restrictions on the use or sale of any project asset;

• restrictions on the right to receive or use project cash flows;

• grants of security interests or similar collateral security rights to any party other than the project lender;

• short cure periods for defaults or restrictions on automatic terminations without any cure periods;

• force majeure provisions; and

• transferability of project documents following a foreclosure.

The following chapters in this part of the book contain summaries of the significant documents in a project financing. Although the documents might seem to be a bit overdone, do not be too confused or disheartened. One author commented: