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After a default, the loan is fully due and payable. Repayments are accelerated to the present.

ad valorem:

Off the gross or stated value, usually a percentage.


Asian Development Bank.


A loan drawdown is advanced by the funder.


The bank charged with administering the Project Financing. Generic: A party appointed to act on behalf of a principal entity/person.


Interest Rate which includes Margin, Commitment Fees, up-front fees.


Reduction of capital or up-front expenses (capitalised) over time, often an equal amount p.a. Sometimes describes Repayments.


The sum of Principal and Interest is equal for each period.


Take advantage of discrepancies in price or yields in different markets.

Arranger :

The senior tier of a Syndication. This implies the entity that agreed and negotiated the Project Finance Structure. Also refers to the bank/underwriter entitled to Syndicate the loan/bond issue.


The physical project and its associated contracts, rights, and interests of every kind, in the present or future, which can be valued or used to repay Debt.

Assignment :

Grant of the right to step in to the position of a party to a contract or legal agreement.


An independent examination of the financial statements or project studies/projections.


The Project Financing is available for drawdown. A period prior to Financial Close may also be included.

Available cashflow:

Total cash sources less total cash uses before payment of Debt Service.

Average Life :

Average for all repayments, usually weighted by amounts outstanding.

avoided cost:

The capital and expense that would otherwise have to be spent if the project did not proceed.

balance sheet:

The accounts which show Assets, Liabilities, Net Worth/Shareholders’ Equity.


A large single repayment 0f principal.


Builders’ All Risk, a standard construction insurance.


The physical form of countertrade.


The benchmark interest rate or level such a US Prime or LIBOR.

Basis Point (bp):

One hundred bp equals 1 percentage point.


Borrower, Amount, Term, Repayment Method, Interest Basis + Margins - a way of summarising the term sheet.

Bearer Bond:

The Bond certificate is itself Negotiable. (It is not recorded as being owned by any particular Investor.)

best efforts:

A very high standard of undertaking, nevertheless excusable in the event of force majeure or failure to execute the matter in question after trying to do so on a sustained, dedicated basis. Under English law, "best endeavours" is a preferable term.


Business interruption insurance available once the project is in business.

Bid Bond:

A small percentage (1-3%) of the tender contract price is established as a bid "performance" bond. Once the contract is awarded, Bid Bonds are refunded to the losers.

Blocked Currency:

Due to Inconvertibility or Transfer Risk, a currency cannot be moved out of the country.


The paper evidence of a legal promise by the Issuer to pay the Investor on the declared terms. Bond are usually Negotiable. Bonds are customarily longer-term, say 5-25 years. Short-term bonds are usually referred to as Notes.


Build Own Operate (and Maintain).

Book Runner:

The Arranger or bank extending the invitations for a Syndication and tallying Final Take.


Build Own Transfer where the project is transferred back to the party granting the concession. The transfer may be for value or at no cost.

Break Even:

The reduction of a Project Finance Net Cash Flow to zero by changing an input variable such as price or costs.


A party which brings together sponsors, finance, or insurances but is not acting as a principal.


The standard insurance package during construction.


A one-time repayment, often after no /little Amortisation of the loan. A balloon.


A promise to repurchase unsold production. Alternatively, a promise to repay a financial obligation.


A once-off payment out of LDs to reflect cashflow losses from sustained underperformance. Often used to "buy" down the Project Finance loan.

Buyer Credit:

A financing provided to a buyer to pay for the supply of goods or services usually by an exporting country or the supplier company.


An option to buy a Security or commodity for a set price at a given time in the future.


A ceiling on an interest or FX rate through a swap, options, or by agreement.


Capital Expenditures usually by way of direct investment.

Capital markets:

A broad term to include tradeable debt, securities, and equity as distinct from private markets or banks.

Capitalised Interest:

Prior to Completion, the convention is to capitalise interest into the Project Financing ie. to borrow to pay Interest. See IDC.


The generation of cash by a Project.


Commonwealth Development Corp, a British development finance institution.


Under Crown Law, the document evidencing mortgage security. A Fixed Charge refers to a defined set of Assets and is usually registered. A Floating Charge refers to other Assets which change over time eg. Cash, Inventory, etc which become a Fixed Charge after a Default.

Claw Back:

The ability to recover prior Project Cashflow that may have been distributed/paid away as dividends to the Sponsors.


A group of underwriters who do not need to proceed to Syndication.


Where the different lenders agree to fund under the same documentation and security packages yet may have different interest rates, repayment profiles, and term, perhaps via A and B tranches.


A second-tier Participant, ranked by size of participation.


The French ECA.


Besides electricity, another energy is produced and sold from the waste heat from a power plant, eg. steam, hot air, refrigeration.


A ceiling and floor to an interest or FX rate structured through swaps, options, hedging, or by agreement.

Collateral :

Additional Security pledged to support a Project Financing.

Combined Cycle:

The waste heat from an electric generation unit is recovered as steam which is used to generate more electricity through a steam turbine.

Commitment Fee:

A per annum fee applied to the portion of the unused Project Financing (the amount not yet drawn down) until the end of the Availability period.

Commitment letter

A formal letter offering an underwriting on a given set of terms and conditions, including interest basis/margin and fees.

Compensation Trade:

The form of countertrade where an incoming investment is repaid from the units / revenues generated by that investment.

Complementary Financing:

Where different lenders agree to fund under similar yet parallel documentation and a pro-rata security package.


In a Project Financing, when the Project’s Cashflows become the primary method of repayment. It occurs after a Completion Test. Prior to Completion, the primary source of repayment is usually from the Sponsors or from the Turnkey Contractor.

Completion risk:

Construction, development, or cost overrun risk. The risk that a project will not be able to pass its Completion Test.

Completion Test:

A test of the Project’s ability to perform as planned and generate the expected Cashflows. The time when the Project can move from Recourse to a Project Financing.


Interest is reinvested to earn additional interest in the following period.


All of the Participants or developers. For the early stages of a Project, it may be a loose association, not a legal or contractual entity/JV.


An additional amount/percentage to any Cashflow item eg. Capex. Care is needed to ensure it is either ‘to-be-spent’ or a Cushion.


For liabilities, those that do not yet appear on the Balance Sheet - guarantees, supports, lawsuit settlements. For support or Recourse, the trigger may occur at any time in the future.


A financial instrument that can be exchanged for another Security or equity interest at a pre-agreed time and exchange ratio.

constant dollar:

Inflation or escalation is not applicable. Prices and costs are deescalated/reescalated to a single point in time.


The other participant, usually in a swap or contract and includes intermediaries.


One party supplies a unit / funding in return for other material/funding. See Barter.

country risk:

Includes sovereign risk but usually an estimate of the likelihood of a country debt rescheduling which will prompt currency Inconvertibility. Sometimes referred to as sovereign risk.


The Interest amount or rate payable on a Bond. A coupon may be physically attached to the Bond certificate.


An agreed action to be undertaken (Positive) or not done (Negative). A breach of a covenant is a Default.


The amount above unity of a Debt Service ratio.


Consumer Price Index, a measure of inflation at the consumer level.

Crack spread

A refinery hedging the oil intake and product (mix) of output results in a crack spread roughly equivalent to the gross refinery margin.

Credit Enhancement:

The issuance of a Guarantee, L/C, or additional Collateral to reinforce the credit strength of a Project Financing.


The risk of default on a Debt obligation by that entity is deemed low.

Cross default:

A default by another project participant or by the Sponsor (other than the Project Financing) triggers a Default.


Project Participants agree to pool Collateral ie. allow Recourse to each other’s Collateral.

Crown Law:

Law derived from English law, eg. England, Ireland, Canada, PNG, Australia, Hong Kong, Singapore, India, Malaysia.


Make good a Default.

Current Asset:

Cash or Assets that can be converted to cash within one year.

current dollar:

Actual or real prices and costs. Escalation/inflation effects are included.

Current Liabilities:

Liabilities payable within one year.

Current Ratio:

Current Assets divided by Current Liabilities (a Liquidity ratio).


The extra amount of Net Cashflow remaining after expected Debt Service.

D:E Ratio:

The amount of Debt as a ratio of Equity, often expressed as a percentage.


Discounted Cash Flow where Net Cashflow is brought to a Present Value using a given percentage Discount Rate.


A legal security over the Issuer’s general credit / balance sheet.


Each transition of a project’s flowsheet or sequence is optimised to increase output. This may require minimal Capex.

Debt Service:

Principal Repayments plus Interest Payable; usually expressed as the annual dollar/currency amount per calendar or financial year.


The obligation to repay an agreed amount of money.

D:E Swap:

Debt in a blocked currency is swapped for equity in a local company / project, usually at a discount.


An amount or period which must be deducted before an insurance payout or settlement is calculated.

Default Interest:

A higher interest rate payable after Default.


A Covenant has been broken or an adverse event has occurred. A Money Default means a repayment was not made on time. A Technical Default means a Project parameter is outside defined/agreed limits or a legal matter is not yet resolved.


Some or all of the debt is cash collateralised usually indirectly or via Zero-coupon structures

Deficiency Agreement:

Where cashflow, working capital, or revenues are below agreed levels or are insufficient to meet Debt Service, then a deficiency or Make-Up agreement provides the shortfall to be provided by the Sponsor or another party, sometimes to a cumulative limit.


The amount by which Project Cashflow is not adequate for Debt Service.

defined event:

The definition applicable to the trigger of a loss in an insurance policy, particularly PRI.


Amortisation for accounting (book), tax calculations, or Income calculations. A regular reduction in asset value over time.


A financial instrument based on an underlying contract or funding such as a swap, option or hedge.

Devaluation :

Either a formal reduction in the FX rate or gradually according to FX

market forces.


Delay-in-Startup insurances which can cover all non-site force majeures, change in a law, and contingent contractor liability (Efficacy). Sometimes called Advanced Loss-of-Profits Insurances or Advanced Business Interruption Insurance.

Discount Rate:

The annual percentage applied to NPV or PV calculations (and is often the All-in Interest Rate or the Interest Rate plus Margin for Project Financing). The Discount Rate may be the WACC.


The amount paid out per share, usually once or twice a year, by a company from its profits as decided by the board of directors.

Double Dip:

Tax depreciation is accessed in two countries concurrently.


The Borrower obtains some of the Project Financing, usually progressively according to Construction expenditures plus IDC.


A fee payable when the underlying transaction does not proceed.


Debt Service Cover Ratio; usually annual.


Net Income, Net Profit


European Bank for Reconstruction and Development targeted at Eastern Europe and the former Soviet Union, an MLA.


Export Credit Agency established by a country to finance its national’s goods, investment, and services. They often offer PRI.


Export Credit Guarantee Dept., the UK ECA.


Export Development Corp., Canada’s ECA.


Export Finance Insurance Corp., Australia’s ECA.


Environmental Impact Statement which may have been subject to public comment.

Engineering risk:

Design risk. The impact on project cashflow from deficiencies in design or engineering.

Environmental risk:

Economic or administrative consequence of slow or catastrophic environmental pollution.


In a Project Financing, the cash or Assets contributed by the Sponsors. For accounting, it is the Net Worth or Total Assets minus Liabilities.


Where documents or money accounts are put beyond the reach of the parties.


Bonds issued in any currency and are commonly listed in Luxembourg. They cannot be traded in the USA. Eurobonds are often Bearer Bonds.


US$ deposited with banks outside the USA.


A contract that rolls over after each agreed (short-term) period until cancelled by one party.


Formal signing of documentation. Implement an action required under the documentation.


The state has taken over a company or project, implying compensation will be paid. Nationalisation. Creeping expropriation occurs when a government squeezes a project by taxes, regulation, access, or changes in law.



International Advisory & Finance 1999

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