Debt is repaid from project cash flow, not the sponsor’s balance sheet. That works only when risks are mapped into contracts that lenders can rely on. We ringfence the SPV, build a cash waterfall that protects debt service, and align EPC, O&M, offtake, and feedstock so the deal survives real world shocks. If the risks cannot be allocated and priced, we say no quickly. For a structured review, contact us here: Request Project Finance Advisory.

• Debt is raised at a special purpose vehicle. Lenders look to project cash, contracts, and security over project assets.
• Sponsors provide equity and limited support. During construction there is often a completion guarantee or capped support.
• Once completion tests are met, recourse steps down and the project runs on contracted revenues and reserves.

1. Revenue into a pledged collection account.
2. Taxes, insurance, and essential O&M costs.
3. Senior interest and principal, then top up the debt service reserve account.
4. Maintenance reserve, major overhaul reserve, and working capital needs.
5. Junior debt if any, then distributions to equity if tests are met.

Lock ups trigger when covenants fail. Typical triggers include DSCR below threshold, reserve shortfalls, or key contract defaults.

Contract	Counterparty	Purpose	Key Lender Focus	Common Pitfalls
Concession or License	Grantor or Government	Right to build, own, and operate	Term, tariff framework, termination payments, change in law	Weak termination regime, political risk with no backstop
EPC Turnkey	Contractor or EPC JV	Design, procure, construct for a fixed price and date certain	LDs, performance guarantees, bonding, liquid security, interface risk	Open scope, limited LD caps, weak warranty and punch list rights
O&M Agreement	Experienced Operator or OEM	Operate to availability and efficiency targets	KPIs, LDs for underperformance, spare parts, change out costs	Soft KPIs, pass through of extra costs to the SPV without cap
Offtake or PPA	Utility or Creditworthy Buyer	Revenue source via energy, capacity, or take or pay terms	Tenor, price formula, indexation, curtailment, termination payments	Short tenor, weak payment security, curtailment without compensation
Fuel or Feedstock Supply	Supplier or Trader	Secure input volumes and quality with price pass through if possible	Take or pay vs take and pay, indexation, logistics, credit support	Volume risk, price risk not matched to offtake, single point of failure
Interconnection or Transport	Grid or Pipeline Operator	Connection and capacity rights	Firm capacity, outages, curtailment rules, tie in schedule	Interruptible service, late tie in, curtailment with no remedy
Land Lease or Site	Landowner or State Entity	Tenure for the full debt tenor plus tail	Assignability, step in, rent escalators, title and survey comfort	Short tail, break rights, title gaps, zoning limits
Insurance Program	A rated Insurers and Broker	Construction all risks, delay in start up, property damage, business interruption	Lender named insured and loss payee, exclusions, deductibles, DSU limits	Low DSU cover, force majeure exclusions, weak claims process
Hedging ISDA	Hedge Bank	Fix rates or match price exposures to the revenue formula	Collateral, termination events, alignment with debt tenor	Maturity mismatch, margin calls that drain liquidity
Direct Agreements	All material counterparties	Notice and cure, assignment, and step in rights for lenders	Cure periods, consent to assignment, no termination without notice	No direct agreement, short cure windows, consent withheld

• Construction risk into a fixed price, date certain EPC with liquidated damages and performance guarantees.
• Volume and price risk into offtake and supply with take or pay, capacity payments, or indexed pass through.
• Resource risk handled through credible studies and P50 or P90 cases with debt sized to conservative outputs.
• Political and change in law risks mitigated through contract protections or insurance where available.
• FX and interest rate risk managed through hedging that matches tenor and repayment profile.
• Environmental and social risk addressed through permits, ESIA, monitoring plans, and lender standards.

• Pledge of SPV shares and assignment of material project contracts and receivables.
• Charge over bank accounts and cash waterfall with controlled accounts.
• Mortgage over project assets and site interests where law allows.
• Assignment of insurances and proceeds with lender as loss payee.
• Completion support and equity cure rights during construction.

Key definitions

• CFADS is cash flow available for debt service after O&M, working capital, and taxes.
• DSCR is CFADS over debt service for each period. Used for lock ups and distributions.
• ADSCR is the average DSCR across a defined period. Used for trend tests.
• LLCR is NPV of future CFADS over outstanding debt using the loan rate. Used for sizing.
• PLCR is NPV of reserves plus future CFADS over outstanding debt. Useful for commodity projects.

Directional guides only. Contracted assets often run minimum DSCR in the 1.20x to 1.35x band. Merchant or partially merchant profiles need higher coverage and stronger lock ups.

• DSRA funds a cushion for senior debt service, often 6 to 12 months of interest or I plus P.
• Maintenance and overhaul reserves for turbines, engines, or other heavy equipment.
• Working capital and VAT reserves to smooth collections and tax timing.
• Completion tests include mechanical completion, performance ratio tests, reliability run, and financial ratios above target for a defined period.

Lenders need the ability to cure before a counterparty can terminate. Direct agreements give notice, cure periods, assignment rights, and step in rights. Without these, the value of the contracts is not bankable.

• Notice and cure before termination or suspension.
• Consent to assignment of the contract and receivables to the security trustee.
• Right to replace an operator or contractor after default with an approved party.

1. Data room with technical, legal, commercial, and ESG materials.
2. Debt sizing and term sheet with covenants, reserves, and hedging strategy.
3. Independent engineer, model auditor, insurance adviser, and legal counsel engaged.
4. Contract markup to add bankability and direct agreements.
5. CP checklist, security perfection, and account control in place. Then draw.

• PPA or offtake term sheet, tariff basis, credit support, and tenor.
• EPC term sheet with LDs, bonding, and performance guarantees.
• O&M scope, KPIs, and cost profile with long term parts coverage where relevant.
• Fuel or feedstock supply with indexation and logistics plan.
• Permits, land, interconnection, and environmental studies.
• Base case model with P50 and P90 cases, sensitivities, and hedging plan.
• Sponsor track record, EHS plan, insurance schedule, and organizational chart.

Is non recourse ever completely non recourse?

During construction there is usually completion support. After completion tests, lenders rely on project cash flows, contracts, security, and reserves.

What kills bankability fastest?

Short or weak offtake, EPC with soft LD caps, no direct agreements, and a model that only works on optimistic assumptions.

How do lenders get comfortable with price and volume risk?

Through long tenor contracts, pass through clauses, credible resource studies, and hedging that matches the loan tenor and repayment path.

Request a Non Recourse Structuring Review

Share the project summary, draft contracts, model cases, and timeline. We return a bankability map, covenant sketch, and a clean path to lender approvals.

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