Sponsor Loan Agreement

There are differences between a sponsor support contract and a personal guarantee. The developer`s assistance is to ensure that construction continues until its completion on time, passing through financial difficulties. Sponsor support is shorter and ends with the completion of the project. A personal guarantee ensures that lenders are reimbursed with or without completion of the project. In the case of a temporary loan, this guarantee is guaranteed for the long term of the facility, as long as the project company still owes money to the banks. The guarantee will only end when each baht is refunded. A riskier or more expensive project may require limited recourse funding, secured by a sponsor guarantee. A complex project finance structure may include corporate finance, securitisation, options (derivatives), insurance provisions or other types of collateral enhancements to reduce unin associated risks. [3] Risk identification and allocation is an important element of project funding. A project may be subject to a number of technical, environmental, economic and political risks, particularly in developing and emerging countries. Financial institutions and project promoters may conclude that the risks associated with the development and operation of projects are unacceptable (non-financial). “Several long-term contracts, such as construction, supply, purchase and concession contracts, as well as a large number of condominium structures, are used to create incentives and discourage opportunistic behavior from parties involved in the project.” [3] Implementation templates are sometimes referred to as “project resolution methods”.

Funding for these projects must be distributed among several parties in order to spread the risk associated with the project while ensuring profits for each party involved. The establishment of these risk allocation mechanisms makes it more difficult to manage the risks associated with developing countries` infrastructure markets, as their markets present higher risks. [4] Here`s the tricky part. Sometimes banks go even further, forgetting that this is only a temporary support to sponsors and not a permanent personal guarantee. They extend the cash waiting period that the promoter must cover, beyond the closing date of the project, until the date of full repayment of the loan. One month is allowed because the notification of a capital increase to the Companies Registry Office usually takes three weeks. A similar timeline is handy for the sponsor to find ways to finance their own credit facility….

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