Core Principles Of Traditional Project Finance

Project finance raises long-term debt and equity against the project's assets and future cash flows rather than against sponsor balance sheets. Lenders will not commit capital unless a specific set of structural requirements is satisfied.

Non-recourse or limited-recourse lending

The defining feature of project finance is that lenders look primarily to the project's cash flows for repayment. The project is typically housed in a special purpose vehicle (SPV) that is legally and financially separate from its sponsors. If the project fails, the lender's recourse is limited to the SPV's assets, and not the sponsors' balance sheets.

Cash flow certainty

Because the lender's sole means of repayment is the project's cash flow, lenders require a high degree of certainty about the quantum, timing, and duration of those cash flows. This is typically achieved through long-term off-take agreements, availability payment contracts, or regulated tariffs that provide a predictable revenue stream