Advantages and Characteristics of Project Financing

Abstract

Project financing is usually chosen by project developers in order to inter alia:

• eliminate or reduce the lender’s recourse to the sponsors

• permit an off-balance sheet treatment of the debt financing

• maximize the leverage of a project

• circumvent any restrictions or covenants binding the sponsors under their respective financial obligations

• avoid any negative impact of a project on the credit standing of the sponsors

• obtain better financial conditions when the credit risk of the project is better than the credit standing of the sponsors

• allow the lenders to appraise the project on a segregated and stand-alone basis

• obtain a better tax treatment for the benefit of the project, the sponsors or both

• reduce political risks affecting a project