Non-Recourse Project Finance Loans: Contract Network, Offtake Structures, and Underwriting Roadmap

Sponsors planning power plants, terminals, or processing assets under USD 250 million often look to non-recourse project finance loans. Lenders in this market rely on the cash flow of the asset—not a parent balance sheet—so the network of contracts around the project must be watertight. Below we set out the key agreements, how lenders test them, and the typical approval timeline. We also explain how Financely’s advisory arm matches clients with capital from a pool of more than 180 lenders holding over USD 30 billion of dry powder.

1. What “Non-Recourse” Means in Practice

Debt sits at a special-purpose vehicle (SPV) level. Except for limited completion guarantees during construction, lenders cannot chase the sponsor’s wider assets. Repayment rests on three pillars:

• Predictable revenue secured by an offtake or power-purchase agreement (PPA).
• Reliable cost base locked under fixed-price contracts (EPC, O&M).
• Sound technical and environmental performance verified by independent experts.

2. Contractual Framework

2.1 Engineering, Procurement & Construction (EPC)

A single point-turnkey EPC wraps schedule, cost, and performance guarantees. Key lender focuses: delay damages, performance liquidated-damages bucket, security package (letters of credit or bonds), and parent support of the contractor.

2.2 Operation & Maintenance (O&M)

Post-COD, a long-term O&M contract caps routine costs and sets minimum availability. Lenders look for indexed fee formulas and step-in rights if availability slips.

2.3 Offtake / PPA Agreement

The offtake agreement is the revenue backbone. Whether a 20-year solar PPA or a ten-year take-or-pay tank-storage contract, lenders track:

• Credit quality of the buyer (investment-grade preferred).
• Tariff indexation—fuel pass-through, CPI, or fixed price.
• Termination-payment schedule (should at least clear outstanding debt).
• Dispatch or volume risk allocation.

2.4 Feedstock or Supply Agreement

Biomass plants, LNG import terminals, and certain mining projects also require a long-term feedstock contract. Lender scrutiny mirrors the offtake: counterparty credit, take-or-pay quantities, and replacement rights.

2.5 Insurance Programme

Property-damage, business-interruption, marine, and liability covers name lenders as co-insured and loss-payee. Policies often sit inside an Insurance Advisor’s report before first draw.

2.6 Accounts Agreement & Waterfall

All project revenues funnel into a secured Master Collection Account. A cash waterfall distributes funds: operating costs → debt service reserve → senior debt → maintenance reserve → distributions.

3. Debt Sizing and Base-Case Metrics

Lenders run a base-case financial model and check:

• DSCR (Debt-Service-Coverage Ratio): 1.30×–1.45× target for renewables; 1.45×–1.50× for merchant-exposed assets.
• LLCR (Loan Life Coverage Ratio): At least 1.25× after reserve deductions.
• Debt Tenor: Up to 85 % of offtake term; mini-perm structures (seven-year) for merchant cash flows with refinance expectation.

4. Underwriting Process—Step by Step

Financely guides sponsors through each phase, adding specialist advisors where required.

4.1 Screening and Mandate

• Sponsor shares teaser, preliminary model, and site studies.
• Financely benchmarks leverage, pricing, and covenant appetite of 180+ lenders.
• Mandate letter fixes success fee and exclusivity window.

4.2 Indicative Term Sheet

Within two to four weeks, shortlisted lenders table non-binding terms covering margin grid, tenor, fees, reserve requirements, and covenant set.

4.3 Full Due Diligence

Financely coordinates third-party reports:

• Independent Engineer: Technology, output forecast, O&M cost review.
• Environmental & Social Consultant: ESIA compliance, action plans.
• Insurance Advisor: Gap analysis against lender standards.
• Legal Counsel (borrower & lender): Contract review, security package, local law matters.
• Model Auditor: Tests formula integrity and sensitivities.

Findings feed the credit-committee memo. Sponsors answer further information requests and refine the model until metrics clear required ratios.

4.4 Credit Committee & Commitment

Once internal approvals land, lenders issue a Commitment Letter, locking margin and structure—subject to final documentation and CPs.

4.5 Documentation & Financial Close

• Loan agreement, intercreditor deed, security documents, account bank agreement signed.
• Conditions precedent checklist satisfied: permits, insurance endorsements, completion guarantees, lien searches.
• Funds flow on the closing date; construction account receives first draw.

5. Timeline at a Glance

• 0–4 weeks: Screening ➜ Indicative term sheet.
• 5–14 weeks: Due diligence and model audit.
• 15–18 weeks: Credit-committee approval.
• 19–24 weeks: Documentation, CP satisfaction, financial close.

Total cycle: roughly six months for transactions under USD 250 million.

6. Cost Components

• Arrangement Fee: 1.25–2.00 % of debt raised.
• Commitment Fee: 40–60 bps on undrawn balance post-close.
• Agency & Security Trustee: USD 40k–75k per year.
• Third-Party Reports: Independent engineer USD 150k, insurance review USD 40k, model audit USD 25k–40k.
• Legal Counsel: Sponsor side USD 250k+, lender counsel similar.

7. Core Parties Financely Brings to the Table

• Sponsors / Project Company Directors
• Lenders: Banks, export-credit backed lenders, debt funds, DFIs (180+ contacts)
• Technical Advisor & Model Auditor
• Legal Counsel (international and local)
• Insurance Advisor
• Independent Environmental & Social Consultant
• EPC & O&M Contractors
• Offtaker / PPA Counterparty

8. Financely’s Project-Finance Advisory Platform

• Global lender reach: 180+ institutions with more than USD 30 billion ready for deployment.
• Sector focus: renewable energy, waste-to-energy, midstream storage, data centres, and social infrastructure.
• Ticket sweet-spot: USD 25–250 million per project.
• Deliverables: information memorandum, bank-ready model, data-room curation, term-sheet negotiation, and closing support.

9. Snapshot: 120 MW Solar PV—USD 120 Million Total Cost