Project and Infrastructure Finance: a Legal Guide for Major Projects

A project finance SPV must be structured so that its assets and cash flows cannot be reached by the creditors of the project sponsors or other participants in the event of a sponsor insolvency, and project finance counsel advising on SPV structuring must evaluate whether the SPV's organizational documents contain adequate separateness covenants.

A step-in rights arrangement allows lenders to assume control of the project company's contractual position when the project company defaults under the financing agreements, and project development and finance counsel advising on a step-in rights structure must evaluate whether the concession agreement and construction contracts contain adequate direct agreement provisions that give lenders the right to cure defaults and substitute a replacement operator without triggering termination.

A concession agreement that fails to clearly define when the government will compensate the project company for revenue shortfalls caused by government actions leaves the project company exposed to significant financial risk, and public-private partnerships counsel advising on a concession agreement must evaluate whether the agreement adequately compensates the project company for the revenue impact of changes in law.

A concession agreement's termination compensation provisions determine how much invested capital the project company can recover if the concession is terminated before its scheduled expiry, and loan agreements and disputes counsel advising on termination compensation must evaluate whether the compensation formula covers outstanding debt service and the investors' equity return in all termination scenarios.

The Equator Principles and the environmental and social standards of development finance institutions require project companies to conduct environmental impact assessments and report regularly to lenders on compliance, and ESG compliance counsel advising on project and infrastructure finance documentation must evaluate whether the environmental and social covenants in the financing agreements are specific enough to be independently verifiable.

A cross-border infrastructure project must obtain permits and approvals from multiple regulatory authorities in each jurisdiction where the project is located, and foreign direct investment counsel advising on a cross-border project's regulatory strategy must evaluate whether applicable bilateral investment treaties provide adequate protection against regulatory changes that impair the project's economics.

A contractor or project company that seeks to excuse its performance obligations based on force majeure must demonstrate that the event was unforeseeable, that it was outside the affected party's reasonable control, and that the affected party took reasonable steps to mitigate its impact, and energy and construction counsel advising on a force majeure or delay claim must evaluate whether the events claimed to constitute force majeure satisfy the specific definition in the applicable contract.

A dispute between a project company and a government authority that involves the interpretation of a concession agreement or a bilateral investment treaty obligation is typically better suited to international arbitration than to litigation in the domestic courts of the host country, and international arbitration counsel advising on project and infrastructure finance dispute resolution must evaluate whether the concession agreement or applicable investment treaty provides a basis for submitting the dispute to international arbitration.