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Finance Direct Agreement

The direct agreement of the lenders: this is a three-way agreement between the Authority, Projectco and the lenders, under which the Authority agrees to grant lenders a deadline for the early termination of the project agreement. This agreement will also provide lenders with the opportunity to intervene directly or through a candidate or representative to resolve the termination event or to find another party that is acceptable to the Authority to assume Projectco`s rights and obligations under the project agreement. If necessary, a direct agreement may include clauses in which the consideration of the project document accepts the collection or transfer by the security of the rights of the project company, in accordance with the project document. Direct agreements are also commonly referred to as “tripartite agreements”, reflecting the fact that it is an agreement between three parties, i.e. the project agreement: the main agreement for each PFI project, the project agreement governs the relations, rights and obligations between the Authority and Projectco for the duration of the project. It can also be called a concession agreement. Project lenders generally take responsibility for the security of all project company rights as part of the main project documents as part of the security package (see practical note: security in project financing operations). Service Contracts: Projectco enters into service contracts with service providers and transmits to these contractors the service obligations imposed on them under the project agreement. As noted above, service providers offer guarantees to the Authority and, in certain circumstances, the Authority has intervention rights, subject to the rights of lenders.

In addition to this guarantee, project lenders generally expect direct contractual relationships with counterparties with key project documents. This goal is achieved through direct agreements. Direct agreements generally contain provisions on financing arrangements: the facility agreement is the main document between lenders and Projectco and contains the terms of project financing. Lenders will also need a security package and guarantees to protect borrowed funds. The loan agreement is discussed in more detail in our separate out-law guide on key issues for lenders in project financing contracts. Project financing is a long-term method of financing major infrastructure and industry projects based on cash flows for the finished project and not on investor own financing. Project financing structures typically include a number of participatory investors as well as a consortium of banks that lend to the project. Host Government/adjudicating authority: the government of the country where the project is based will likely be involved in granting authorisations and authorisations, both at the beginning and for the duration of a project. The awarding entity is the contracting authority that enters into the project agreement with Projectco. Agreements on government guarantees have emerged as an extension of the approach that underlies the direct agreement of lenders. Guarantee agreements are concluded between the Authority and the contractors who enter into a contract with Projectco.

The objective is that if projectco does not meet its contractual obligations during the construction phase, the support of Projectco`s corresponding mission can guarantee the completion of the project. In addition, the Authority may take over Projectco`s operating contract at the end of the project.

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