Project Finance
Short definition
Project finance is an SPV structure where lenders rely mainly on project cash (CFADS) and security, with limited sponsor recourse. It is a different DSCR and account-lock regime from a corporate balance-sheet loan.
Detailed explanation
Cash, DSRA, permitted capex and distribution locks sit in pledged accounts. DSCR, LLCR and PLCR are core covenants. Construction interest is capitalised; in operations, sculpted amortisation is fitted to CFADS.
Sponsor support, completion guarantees and offtake can widen recourse in practice. That tests a “fully non-recourse” claim.
Why it matters for the CFO
Mixing corporate EBITDA with project CFADS mis-builds both capacity and the dividend lock. The CFO must keep which pack binds which cash.
How to read it
Minimum DSCR is packed to project risk; there is no universal 1.50x rule. Operating DSCR is meaningless before completion.
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Definitions are educational. They are not investment, credit or tax advice.