Loan Of Project Finance ( Pf )

4022 Words17 Pages
1. INTRODUCTION Lending in Project Finance (PF) is almost always on a nonrecourse or limited recourse basis. This means the lenders’ main recourse in PF is to the project’s future cash flow, as opposed to high-value assets. The lender’s ability to recover the initial loan amount and interest is dependent on a successful and timely construction and the resulting revenue generated once the project is operational. The project sponsors (PS) are not liable for repaying the loan. The natural consequence of this is that the construction phase is usually the tensest, and inevitably, riskiest for lenders, and most defaults occur during this phase. As the project company (PC) has no other source of revenue, or assets, it cannot absorb the risk of…show more content…
Although subsequent case laws were thought to have clarified when a LDs clause will be enforceable, recent court decisions (including El Makdessi v Cavendish Square Holdings BV & Anor [2013] EWCA Civ 1539 and MSC Mediterranean Shipping Company SA v Cottonex Anstalt [2015] EWHC 283 (Comm) have revived concerns as to courts interference with the validity of what is a routine contractual clause. In addition, on the centennial anniversary of Dunlop Pneumatic, the Supreme Court very recently considered the issue in the appeal from the Court of Appeal decisions in El Makdessi and Parking Eye Ltd v Beavis [2015] EWCA Civ 402. This in turn led the author of this paper to consider the usefulness of LDs clauses in PF. Given that timely and appropriate construction is critical to the success of a project (and often to securing investment on good terms), the aim of this paper is to consider the enforceability issues, and how this impacts LD clauses as an adequate risk mitigation tool for completion and performance risks in PF. This chapter has introduced the topic. The second chapter of this paper will consider what completion means and briefly touch on the completion risks. The third chapter will discuss LD and its efficacy. In chapter four, the enforceability issues with LDs and recent
Open Document