How To Raise Project Finance Successfully on a Non Recourse Basis
Non recourse means lenders look to the project’s contracts and cash flows, not the sponsor’s balance sheet, for repayment. That only flies when risk sits with the party best able to manage it and when the paperwork proves it. Below is a clear, bankable path from idea to financial close.
Outcome:
a ring-fenced SPV with a contracted revenue base, tight control stack, tested model, and an insurance program that covers what the contracts cannot.
When Non Recourse Works
Predictable revenues
Take-or-pay, availability-based PPAs or user fees, contracted throughput, or shadow tariffs with credible counterparties.
Bankable construction
Fixed-price, date-certain EPC with LDs, performance bonds, and a contractor that can actually finish the job.
Control of inputs
Fuel or feedstock secured under long-term contracts or diversified suppliers with price hedging and storage.
Stable permits
Concession, land, environmental approvals, and community consents in place or tied to clear CPs.
The Network of Contracts Lenders Expect
| Contract |
Bankable features |
Direct agreement rights |
| EPC |
Fixed price, date certain, performance guarantees, LDs, security package |
Step-in, cure periods, assignment, consent to novation |
| O&M |
Availability KPIs, LDs, budget discipline, spare parts plan |
Replace operator on default, access to manuals and data |
| Offtake or PPA |
Take-or-pay or capacity payments, indexation, creditworthy buyer, clear metering and settlement |
Notice, step-in, assignment to lenders, termination payments waterfall |
| Feedstock or fuel |
Term supply, volume commitments, price bands, quality specs, storage rights |
Assignment and cure rights |
| Concession and permits |
Tenure, tariff framework, stabilization or change-in-law relief |
Security over project rights, step-in by lenders |
Risk Mitigation That Wins Credit Committees
Security and cash control
Share pledges, all-asset debenture, bank-controlled accounts, waterfall, reserve accounts for DSRA, MRA, and O&M.
Hedging
Interest rate swaps, FX hedges, commodity hedges consistent with the offtake and fuel contracts.
Completion tests
Independent engineer sign-off, performance and reliability runs, minimum DSCR on a look-forward basis before term debt goes live.
Counterparty quality
Contractors and offtakers with real balance sheets or credit wraps that stand up in a claim.
Sponsor Equity and Support
| Item |
Typical market view |
Why lenders care |
| Equity contribution |
20 to 40 percent of total cost, higher for first-of-a-kind tech |
Skin in the game and cushion for overruns |
| Contingency |
5 to 10 percent hard cost plus owner’s contingency |
Absorbs scope creep and price shocks |
| Support package |
Limited completion support, equity top-up, no corporate guarantee post-completion |
Bridges the construction risk gap without full recourse |
Insurance Wraps and Credit Enhancement
| Cover |
What it does |
Key lender asks |
| CAR or EAR |
Construction or erection all risk insurance |
Lenders named insured, adequate limits, reputable carrier |
| DSU or ALOP |
Covers delay in start-up revenue loss from insured events |
Indemnity period matches schedule, sub-limits sized to debt service |
| Business interruption |
Protects post-COD cash flow |
Deductibles aligned with reserves |
| Political risk insurance |
Expropriation, currency inconvertibility, political violence |
Assignment to lenders, claims paid offshore |
| ECA or DFI cover |
Reduces cost of debt and extends tenor |
Content rules and ESG covenants respected |
Financial Covenants and Ratios That Decide Pricing
| Metric |
Typical range |
Notes |
| Min DSCR |
1.20x to 1.40x |
By case, higher for merchant risk |
| Average DSCR |
1.30x to 1.60x |
Model audit must tie |
| LLCR or PLCR |
1.3x to 1.8x |
Sets gearing and tenor |
| Debt tenor |
Up to 70 to 85 percent of asset life |
Linked to capex profile and O&M risk |
Step by Step to Financial Close
1) Prepare
Lock permits, grid or access rights, feasibility, E&S baseline, and capital cost with contingencies. Build a lender-grade model and data room.
2) Structure
Fix EPC, O&M, feedstock, and offtake terms. Draft the security package, cash waterfall, reserves, hedging policy, and insurance schedule.
3) Syndicate
Mandate MLAs or a club, run Q&A with the IE and insurance adviser, negotiate term sheet, then long-forms and intercreditor.
4) Close
Satisfy CPs, execute direct agreements, fund equity first, then debt. Notice to proceed follows, with IE monitoring through completion tests.
Bank Pack Checklist That Speeds Approvals
| Document |
What it must show |
| Financial model + audit |
Inputs trace to contracts, sensitivities, covenants, and a clear sources and uses |
| IE report |
Capex review, schedule, performance tests, O&M plan, spares, degradation or efficiency curves |
| Legal due diligence |
Title, permits, land, corporate approvals, enforceability, and security opinions |
| Insurance report |
CAR/EAR, DSU, BI, third-party liability, PRI where relevant, lenders named as loss payees |
| ESG pack |
ESIA, community engagement, grievance mechanism, and monitoring plan |
Indicative Term Sheet Snapshot
| Gearing
|
Debt 60 to 80 percent subject to DSCR and contract quality |
| Tenor
|
Up to 12 to 18 years, sometimes longer with ECA cover |
| Pricing
|
Base rate plus margin set by sector, risk, and cover |
| Reserves
|
DSRA 6 to 12 months debt service, maintenance reserve, major overhaul reserve as needed |
| Distributions
|
Locked until completion tests passed and covenant headroom proven |
Your project is fundable when the contracts carry the risk, the cash waterfall is tight, and the model stands up to a third-party audit. Send your EPC and offtake drafts, permits status, and model. We will return a lender map, a covenant set, and a closing calendar you can plan around. We help our clients capitalize on opportunities.
Get Your Non Recourse Project Finance Route
Share your sector, capex, counterparties, and deadlines. We will assess feasibility and move to terms.
Start the Process
Ranges and structures are indicative and vary by sector and jurisdiction. Any financing is subject to lender due diligence, model audit, KYC and AML checks, sanctions screening, environmental and social review, and executed documentation.