Financial Agreement

Checklist for Project Financing Agreement

Drafting a project financing agreement ensures that the financing process happens perfectly. Now learn more about checklists for project financing agreements.

The project financing agreement is complicated. Before drafting the financing agreement you should make sure to have the following documents and adhere to the rules and regulations of the government.

Project Documents

This is the very first thing that you should have before drafting the financial contract

  • It is an incorporation statement of the operating company and its supporters, the investment treaty, project management agreement, sponsor, or joint venture agreement are also used
  • The project firm is incorporated by the sponsor as per the ordinance of the government administration.

Operational Agreement

The operating agreement is the most important agreement under which specific liberties are permitted by the government authority in favour of the operating firm to improve, build and regulate the facility. 

  • It can be either a growth agreement or an EPC agreement
  • This agreement has clauses related to security, settlement fees, project growth and supervision, responsibilities of the undertaking firm and the government authority, financial clauses, penalty and indemnity, conflict determination, and jurisdiction
  • An EPC agreement gives detailed insights , building, procurement, and commissioning of experiment facilities by the project firm for a specific period for a fixed price
  • The achievement of which is ensured by the program firm for a specific period
  • The loss in business and moment overruns in programs is assumed by the investment business. 

Property Agreement

This is an agreement under which the possession or the liberties under the topic are substituted by the government authority to the project firm and can assume the aspect of actions, leases, or agreement. The project firm assembles the capability on such commodities.

O&M Contract

  • The procedure and supervision of the project are sometimes taken over by the program firm and occasionally outsourced to another operator
  • One of the key problems in an O & M agreement is productive supervision of systems to maximise the earnings so that lenders are spent on entire
  • The systems and supervision hazards are mitigated by committing to a trained operator who can organize and regulate the program efficiently and cost-effectively
  • This agreement has eliminated the requirements to mitigate the risks of bad attainment by the operator.

Supply Contract

  • This agreement records all the readings, fuel, or other intakes essential for regulating the building
  • The rate and several tenures and situations of the supply agreement are crucial deliberations in structuring a project financing
  • The availability of intakes, outcomes of non-supply, minimum off-take, rate of the intakes, payment escalation, and political  threat should be taken into deliberation while reconciling such a contract.

Off-Take Agreement

  • The off-take agreement is the treaty under which the off-taker analyses the outcome from the treaty created by the project firm
  • The off-take treaty provides a steady income stream to the project firm for immediate payment of deficit to the lenders and saves the supporters.

Funding Agreement

These agreements are crucial for conducting the funding process. Contain all the terms and conditions of the funding procedure.

  • Satisfaction of situations precedent by the project firm makes the program firm eligible to obtain currency from the lender
  • The period during which the loan shall be ready for the project firm
  • Payment list and price of income expected by the project firm
  • The ledge requirements, which conserve the lenders from immediate expenses correlated with the program
  • Articulations and contracts by the undertaking firm on the purpose of which lenders give business finance agreement to the program corporation.

Investment agreement

  • The supporter and the program firm for wealth investment by the undertaking sponsor in stipulated quantities and at prescribed periods as per the financial prototype of the project firm
  • The investment documents include requirements that if the sponsor does not give their payments back
  • The letter of stature given by them as security or their responsibilities can be executed by the lenders or the collateral dealer.

Inter-creditor agreement

  • It provides the contracts with the rivaling interest of the creditors in the program firm
  • The Inter-creditor treaty will usually give a regulation on the expenditures to the minor lenders upon the circumstance of an event of insolvency under the old lender credit treaty
  • These requirements are pertained to as ‘expenditure blockage’ requirements
  • In case an expenditure blockage requirement is activated, all expenditures to the junior lenders will usually be obstructed, including interest on their loans.

Security Agreement

  • It provides safety for all the insurance attention in the project firm in favor of lenders for payment of obligations and interest thereon
  • In a security agreement, the project firm consents to the security attention to the collateral agent all the liberties, possession, and attention in the project company’s properties
  • It comprises all the liberties of the project firm in the project reports such as off-take agreement, concession/EPC contract, and O&M contract
  • The lenders may take supervision of the project and carry out its strategies.

Pledge Agreement

  • The supporters promise all their shares in the project firm to lenders as safety for attaining their responsibilities under the financing treaty
  • If the operation firm defaults, the lenders can foreclose the promised treaty and change the shares  to a third party
  • The lenders may take supervision over the program and operation.

Mortgage or deed of trust

  • The project firm mortgages all of its income in its investments, including liberties in the project location will be finalised in this document
  • In the incident of default by the project firm, the lenders can foreclose the mortgage and regain their deal of mortgaged investments or take custody of the business location and operation.

Conclusion

The project finance being  a legally intensive document, all the treaties should be carefully inducted and fixed to mitigate the issues and conserve the attention of all the stakeholders. If you feel like you cannot remember all the above-mentioned data and if you are in need to draft an agreement, reach out to our experts at Vakilsearch who will provide you with the best holistic support. We will draft the Financing agreement on your behalf in just 4 days and send it across for your inputs. Apart from this our experts will also help you with the revisions. 

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