Financing Agreements: The Facility Agreement is the main document between the lenders and Projectco and contains the terms of the project financing. Lenders will also need a set of guarantees and guarantees to protect the funds lent. The loan agreement is explained in more detail in our separate OUT-LAW guide on key issues for lenders in project finance agreements. SVW has one of Norway`s largest financing firms with over twenty experienced lawyers. We continuously advise our clients in all areas of financial services regulation and financing transactions, including asset finance, project finance, acquisition financing and bond financing. In our newsletter series, we give a brief introduction to various relevant topics in finance. In this article, we will focus on direct agreements between lenders and borrowers` counterparties. Attempts to circumvent this legislation by establishing membership or transfer rights for the lender will most likely be reversed as an invalid attempt to create an assignment of contract, and if the agreement is found to be invalid, it will not bind either the parties or third parties affected by the assignment (e.g.B. receivers). For this reason, it is important that Norwegian direct agreements are carefully formulated and clearly establish a parallel regime, i.e. a right for the lender to conclude new contracts instead of replacing the borrower in existing contracts. The primary purpose of “direct agreements” related to debt financing is to establish a direct contractual relationship between a lender and the borrower`s counterparties in order to allow the lender to take control of the borrower`s contracts. Project Agreement: The main agreement for each PFI project, the project agreement governs the relationship, rights and obligations between the authority and Projectco throughout the life of the project.
It can also be called a concession contract. Equity investors: Lenders or project promoters who do not expect to play an active role in the project. In the case of lenders, in addition to lending in the form of debt, they will have an interest in obtaining an improved return if the project is successful. In most cases, any investment in the form of shares is associated with an agreement that allows the equity investor to sell their shares to the project promoter if the equity investor wishes to leave the project. Similarly, the project promoter may have the opportunity to buy back the shares. Construction Contract: Projectco enters into a construction contract with the Contractor, under which Projectco`s construction obligations under the Project Contract are transferred to the Contractor. A direct agreement is an agreement that gives project lenders direct rights to certain key project documents. These rights are explained in direct agreements in project finance operations – Key Provisions. By Katie Liszka Direct agreements are used in project financing transactions to provide protection to lenders in case the project gets into trouble.
These are contractual mechanisms that allow lenders to follow in the footsteps of the project company (the borrower) and take over the project and/or find a replacement position to continue the project. The parties to the direct agreement include the project company itself and the counterparty of the project document with which the direct agreement establishes a link. ]]> subcontracts: Projectco enters into various subcontracts to disclose the risks it takes under the project agreement. It is common for Projectco not to carry out any of the key activities itself, but rather to be a vehicle to form the series of contracts associated with the project – hence the term “special purpose vehicle”. Direct agreements that establish a lender`s parallel contractual arrangement do not preclude a bankrupt estate from joining the bankrupt borrower`s contracts. However, if direct agreements are accompanied by a valid guarantee of the borrower`s material assets, it is impractical and of little value for the bankruptcy estate to exercise its right of membership. Direct agreements are also generally referred to as “tripartite agreements”, reflecting the fact that they are an agreement between three parties, i.e. direct agreements are the most common for project financing and other facilities when the value of the total assets financed depends on the borrower`s contracts. These are, for example, direct agreements. B for all major contractors and counterparties to a project-financed wind farm or to the bareboat charterer of a vessel financed by an active/term loan. In early PFI projects, it was common to have separate agreements for different phases of the project, such as .B. a development agreement for the design and construction phase and an operation or facilities management agreement for the operational phase.
Nowadays, however, it is more common to have a single project agreement that covers all aspects of the project. A direct agreement often involves changes to the underlying project documents. This applies in particular to concession contracts where the project company receives the concession before the lenders are heavily involved. Financing often follows the award of the concession, and lenders may require changes to the risk allocation in the concession contract to make the project bankable. The direct agreement of the lenders: This is a tripartite agreement between the authority, Projectco and the lenders, under which the authority agrees to give the lenders a period of notice of the imminent termination of the project agreement. This Agreement also provides lenders with the opportunity to intervene, either directly or through a nominee or agent, to resolve the termination event or to find another party acceptable to the authority to assume Projectco`s rights and obligations under the Project Agreement. Host governments/contracting authorities: The government of the country where the project is based is likely to be involved in the issuance of permits and permits at the beginning and throughout the life of a project. The client is the local public authority that concludes the project agreement with Projectco. Where appropriate, a direct agreement may contain clauses in which the counterparty to the project document agrees to the calculation or assignment to secure the project company`s rights to the project document. Service Agreements: Projectco enters into service agreements with service providers and communicates its delivery obligations under the project contract to these contractors. As noted above, service providers provide guarantees in favour of the authority and the authority has entry rights in certain circumstances – again subject to the rights of lenders. There is usually no debate as to whether a direct agreement should be reached in principle.
However, it is still common for certain provisions to be intensively negotiated, and it often seems that disproportionate time is spent on such a short agreement. To my knowledge, no one has ever intervened under a direct agreement, and there would be practical difficulties in doing so, such as. B the renovation of all project contracts. However, direct agreements are common practice and are an integral part of a lender`s suite of security rights. Regulatory guarantee agreements: These have emerged as an extension of the concept behind lenders` direct agreements. The authorities shall conclude parallel agreements between the authority and the contractors who conclude contracts with Projectco. If Projectco does not comply with its contractual obligations during the construction phase, the authority may ensure that the project is completed by taking over the appropriate contract from Projectco. In addition, the agency can accept Projectco`s operating contract when the project is terminated. In an execution scenario, the application of direct agreements and guarantees on the borrower`s assets is often the alternative approach to enforcing the collateral of the borrower`s shares.
By applying direct agreements and asset guarantees, assets can be sold separately from the borrower, as opposed to the sale of the borrower`s shares, where the borrower`s claims and other legal relationships remain. .
