Project Financing is a financial structure for the development of large-scale infrastructure projects, whereby creditors do not depend on the capacity of the persons carrying out the project to cover the debt, nor on the guarantee offered by them. Rather, the lenders extend credit to the extent that the operation is expected to generate revenues, guaranteeing their return with these revenues and thus assuming the inherent risk of the operation.
Therefore, it is necessary to develop and implement a solid legal structure to evaluate, reduce and transfer the risks of the operation, so that the project can be carried out in a way that provides security to creditors -or lenders- and debtors -or sponsors-.
Roughly speaking, a Project Financing operation consists of a contractual network that revolves around the ideal legal vehicle for the type of operation (joint ventures, corporations, trusts and even S.A.P.I.s). Each party involved (banks, construction companies, operators, etc.) enters into contracts with the vehicle, which work for each specific activity of the operation.
The intervention of Basham, Ringe y Correa, S.C. as legal advisor in this type of projects, consists of legally structuring the Project Financing in such a way that (i) the most adequate legal vehicle for the operation -Special Purpose Vehicle (SPV)- is determined specifically for each project; (ii) the risks inherent to the project are clearly and expeditiously identified; and (iii) an efficient contractual network is structured to guarantee the flow of the project and minimize or transfer risks as much as possible.
Among the activities of our Firm for the structuring of a Project Financing and during its execution, are the following:
- Determine the type of entity that will be the SPV and establish its special bylaws;
- Audit and assess the project to identify risks;
- Devise contracts and/or agreements between all parties to the operation; and
- Determine the "bankability" of the operation.
DURING THE DEVELOPMENT OF THE PROJECT:
- Devise all contracts to carry out the work or operation, and the necessary subcontracts, such as (EW, EPC and O&M Agreements; PPA Agreements; guarantees to works contracts; insurance contracts; and sales contracts, among others).
- Mandates to banks as creditors of the operation;
- Credit agreements;
- Intercreditor Agreement, in cases where there is more than one creditor;
- Equity Contribution Agreements;
- Hedging Agreements;
- Due diligence and legal opinion prepared by the creditor's legal counsel; and
- Syndication of credit.
EQUATOR PRINCIPLES AND ENVIRONMENTAL CONSULTING IN PROJECT FINANCING
The Equator Principles are a set of international voluntary standards for assessing environmental and social risks in Project Financing. They were created by a group of international banks and adopted in June 2003. Financial institutions that apply the Equator Principles (known as Equator Principles Financial Institutions "EPFIs"), have committed to apply these principles to projects requiring loans.
The most important financial institutions in Mexico that develop project financing operations have also adopted the Equator Principles. The most important financial institutions in Mexico that develop Project Financing operations have also adopted the Equator Principles.