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PROJECT FINANCE
The project financing service includes irrevocable financing for implementing and developing a particular project. This type of financing is based on the project’s future cash flows and the project’s assets rather than the project sponsor’s creditworthiness in terms of debt repayment. In particular, infrastructure projects require substantial capital. This financing technique is frequently used all over the world in the realization of these infrastructure projects.
Although project finance techniques are applied in a wide variety of industries worldwide today, project finance can be traced back to ancient Greece and Rome, where it was used to finance maritime operations and infrastructure development. Defining modern project finance has become increasingly difficult. Project financing is a special form used in a specific situation. Most project finances have key features in common:
- The project is developed through a separate and often single-purpose financial and legal entity.
- The debt of the project company is often completely separate from the direct liabilities of the sponsors, at least in terms of the balance sheet.
- Sponsors seek to maximize their equity leverage, and the amount of debt is directly linked to the cash flow potential and, to a lesser extent, the liquidation value of the project and its assets.
- Sponsors’ guarantees to lenders generally do not cover all risks associated with the project.
- Project assets and revenues, including contracts with third parties, are often given as collateral for lenders.
- Contractual commitments from various third parties represent important components of credit support for the project.
What is The Project Financing Process?
Within the scope of medium to long-term financing options developed specifically for each project, project risks are determined in line with sectoral data and macroeconomic indicators. Financial feasibility reports are prepared, and the project’s technical, economic, and financial aspects are evaluated while preparing these reports. Pricing is determined, and the project’s maturity and optimum equity and debt structure are calculated.
In the project financing process, the project’s cash flows are also created in line with the scenarios determined. By determining the project’s credit conditions and collateral conditions, sometimes, if necessary, consortia are formed with domestic and foreign banks. Participation in consortiums formed. Following the management of the guarantee document and loan agreement preparation process, the necessary financing is provided to complete the project.
What Are The Risks of The Project Financing Process?
The project’s sponsors, namely the equity providers and the project lenders, the debt providers, may have different perspectives on the probability of adverse events in the future and which party should bear the risk of these events occurring in the financing process. A project’s due diligence is of paramount importance as the risk profile of a project will directly affect the structuring of the overall debt and equity arrangements.
At any project finance startup, project lenders require an attorney to produce a comprehensive legal, due diligence report that identifies key risks to the project’s future success. This is a vital stage of the financing process because an unidentified and unmitigated risk can jeopardize a project’s stability. Such a report would require the attorney to work closely with a range of expert advisors and relevant jurisdictions.
What is The Key Role of The Lawyer in The Risks of The Project Financing Process?
In general, in a successful project financing, once key project risks have been identified, such as material project risks and the project company’s contractual arrangements with its sponsors, lenders, suppliers, and buyers, a lawyer’s key role is to advise on the optimal distribution of these risks and mitigate them as much as possible through the documentation process.
Strong companies such as MGC Legal, with an experienced and expert project finance team and capacity, demonstrate superior legal guidance on many project finance issues. The services of these firms include representation of Turkish and foreign banks and development banks, as well as sponsors and borrowers, regarding all types of financing, from conventional financing to project bonds.
What Are MGC Legal’s Project Finance Services?
As diverse and more sophisticated players enter the market, project finance has become more complex. Successful financing is only possible if the funded project and its field of activity are well known. In this environment, the MGC Legal team of highly skilled financial lawyers provides commercially viable, reliable, and future-proof private finance solutions, working on a large-scale portfolio and crucial projects.
MGC Legal team, which is also at the top in project finance, has expert and sectoral knowledge in planning, construction, corporate, tax, real estate, restructuring, bankruptcy and dispute resolution, and many more. MGC Legal combines its financial expertise with viable solutions for its client’s projects and adds demonstrable value to their project finances. It best represents the project participants, such as lenders, borrowers, and equipment suppliers.
In project finance services, loan agreement documents should not be seen as intangible documents but as documents that should be negotiated carefully. If necessary, changes should be made in favor of the client. One of the strengths of MGC Legal, which approaches project finance services from this perspective, is the ability to support new and innovative activities. MGC Legal perfectly handles all aspects of project finance on a wide variety.
What Are The Fields of Activity of MGC Legal?
Providing a 360-degree view and advice on key business drivers and considerations to lenders, credit support agencies, government agencies, sponsors, developers, and contractors, MGC Legal’s broad range of business areas where it best assists its clients in project finance includes:
- Preliminary assessment and due diligence,
- Preparation of guarantee documents,
- Preparation of documents related to the project,
- Fulfillment of credit usage conditions,
- Reviewing and negotiating financing agreements,
- Supervision of the credit utilization process,
- Providing consultancy services during the loan period.
Why MGC Legal in Project Finance?
Today’s project finance market has begun to serve increasingly complex projects. Advising on a global scale to clients dealing with project finance in this exciting and evolving market, MGC Legal has a unique and important role in advising on the effective management of risk to ensure that project finance continues to push the boundaries.
The MGC Legal team has first-hand experience with the latest innovations to structure equity and debt capital and mitigate project risks. Project finance lawyers, like the MGC Legal team, need to be able to assess the big picture, understand what points are really important in the overall business context, and negotiate a deal that works for all parties throughout the project’s life.
Given the long-term nature of financing a project, the documentation must be robust enough to withstand the long term. Comprehensive or well-prepared legal documentation is essential throughout the life of almost any project. One of the reasons why the MGC Legal project finance team is most preferred is that it conducts a careful initial assessment of project risks.
MGC Legal strives to minimize the frequency with which any project encounters problems by promoting a consensus-based approach between parties to resolving emerging risk allocation issues. Given the complexity of the process and the large sums at stake, project financing is an intensive and, in many ways, legal skills-intensive process. MGC Legal combines its experience in different sectors with legal knowledge to provide the most efficient service to its clients.
