Sponsor In A Loan Agreement

Lenders will generally not wait for the project to collapse. They will monitor the financial health of the project company every three months, especially during the construction period, through audited and audited annual accounts. If they experience a liquidity problem in the next quarter, banks will have enough time to load the sponsor`s personal funds, otherwise lenders will have the right to cut the line of credit. A riskier or more expensive project may require limited recourse funding, guaranteed by a sponsor guarantee. A complex project financing structure may include corporate financing, securitizations, options (derivatives), insurance provisions or other types of collateral reinforcement to reduce unassigned risks. [3] Assistance in obtaining licences, authorizations and administrative authorizations (particularly in the case of a local sponsor), and in other words, the banks claim that if the project borrower does not have enough money to repay the loan and interest for the duration of the loan – say five to seven years, even during the operating period, long after the project closes – the sponsor must take over and assist with the payment. In fact, if the borrower does not pay, the sponsor must pay. Banks consider a liquidity default or cost overrun to be a drawtop event, meaning that the borrower in the project business can only obtain loan funds once the situation has been resolved. The bank will then inform the sponsor of a certain amount of assistance needed to cover the deficit and ask him to discuss whether to do so through debt or equity: a subordinated loan or a capital increase. Once a joint decision has been made, the bank`s promoter will confirm in writing the agreed support method and will have to implement it within one month. In general, an assignment unit is created for each project, which protects the other assets of a project sponsor from the adverse effects of a project failure.

As an ad hoc entity, the project company has no assets other than the project. Capital commitments from the owners of the project company are sometimes necessary to guarantee the financial scope of the project or to ensure the commitment of the sponsors to the funders.