{"id":19400,"date":"2022-10-11T19:07:14","date_gmt":"2022-10-11T19:07:14","guid":{"rendered":"http:\/\/legalblog.ie\/?p=19400"},"modified":"2024-02-03T21:15:33","modified_gmt":"2024-02-03T21:15:33","slug":"ppp-funder-terms","status":"publish","type":"post","link":"https:\/\/legalblog.ie\/ppp-funder-terms\/","title":{"rendered":"PPP Funder Terms"},"content":{"rendered":"<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_63 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title \" >Table of Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/legalblog.ie\/ppp-funder-terms\/#Debt_Funderf_Requirements\" title=\"Debt Funderf Requirements\">Debt Funderf Requirements<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/legalblog.ie\/ppp-funder-terms\/#Risks_I\" title=\"Risks I\">Risks I<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/legalblog.ie\/ppp-funder-terms\/#Risks_II\" title=\"Risks II\">Risks II<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/legalblog.ie\/ppp-funder-terms\/#Debt_Servicing\" title=\"Debt Servicing\">Debt Servicing<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/legalblog.ie\/ppp-funder-terms\/#Step-In\" title=\"Step-In\">Step-In<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/legalblog.ie\/ppp-funder-terms\/#Security\" title=\"Security\">Security<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/legalblog.ie\/ppp-funder-terms\/#Purpose\" title=\"Purpose\">Purpose<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/legalblog.ie\/ppp-funder-terms\/#Pre-Conditions_Drawdown\" title=\"Pre-Conditions &amp; Drawdown\">Pre-Conditions &amp; Drawdown<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-9\" href=\"https:\/\/legalblog.ie\/ppp-funder-terms\/#Representations_Warranties\" title=\"Representations &amp; Warranties\">Representations &amp; Warranties<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-10\" href=\"https:\/\/legalblog.ie\/ppp-funder-terms\/#Covenants\" title=\"Covenants\">Covenants<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-11\" href=\"https:\/\/legalblog.ie\/ppp-funder-terms\/#Events_of_Default\" title=\"Events of Default\">Events of Default<\/a><\/li><\/ul><\/nav><\/div>\n<h3><span class=\"ez-toc-section\" id=\"Debt_Funderf_Requirements\"><\/span>Debt Funderf Requirements<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>The debt funders are granted security over the company&#8217;s assets.\u00a0 In effect, the sponsor&#8217;s liability is limited to their equity contribution or any other obligations they may own in another capacity.<\/p>\n<p>The lenders will analyse the project and undertake considerable legal, technical, and financial due diligence on the project.\u00a0 Key considerations include the allocation of risk, the obligations of consortium members, covenants, the capability of subcontractors and the security offered. The lender must at least be satisfied that every participant in the project is sufficiently strong, given the interdependent nature of each player.<\/p>\n<p>Key considerations include planning, design, construction and completion.\u00a0 Generally, no payment will be forthcoming until these are delivered. The capacity and capability of the participating entities to deliver completion is critical.<\/p>\n<h3><span class=\"ez-toc-section\" id=\"Risks_I\"><\/span>Risks I<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>The lender will assess the cash flows and the risks attached to them.<\/p>\n<p>Risks should be allocated to the person who is best in the position to bear it.\u00a0 The project company should have as few risks as possible, given its limited nature.<\/p>\n<p>If the funders are not satisfied with the ability of the contractors to bear a risk, they will generally not be willing to have it borne by the project company, given its limited equity or subordinated debt.\u00a0 The debt funder\u2019s interest must be considered at the bidding stage.<\/p>\n<p>Operational risk arises in the context of ongoing payments based on continued compliance with the requisite standards and requirements.\u00a0 The lender will need to be satisfied that the payment mechanisms are structured so as to avoid tax withholding or deductions from the payments.<\/p>\n<p>The lender must be satisfied that the cost estimates, capital and operating are realistic and make sufficient provision for contingency. Although the bank may not be directly based to carry the risk of mispricing, the borrowing entity may not have a strong covenant, and the funder will wish to be satisfied that the pricing is sufficient to deliver the obligations undertaken.<\/p>\n<p>A funder will wish to ensure that the payment or payments are not subject to the risk of deductions for underperformance.\u00a0 The funder might be concerned about requests for additional services.\u00a0 This may alter the structure of the risk and project.<\/p>\n<h3><span class=\"ez-toc-section\" id=\"Risks_II\"><\/span>Risks II<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>There may be risks related to changes in the law, legal capacity cost, or other critical impediments.\u00a0 This may be a particular issue in jurisdictions which lack reliable application of the law and enforcement. The relevant entity or awarding authority must have sufficient powers and capacities.<\/p>\n<p>The funder must be satisfied with the requisite property rights and with the physical condition of the land in the context of what must be delivered.\u00a0 Issues may arise in relation to residual value, if this is an element of the project that is important.\u00a0 Site conditions, including the risk of contamination and discovery of antiquities etc., fossils, may be significant.<\/p>\n<p>The funder will wish to assess the financial management and technical strength of the sponsors behind the project and key contractors.\u00a0 The consortium must have sufficient key minimum attributes. They must have the technical competence, expertise and resources to perform the project agreement.<\/p>\n<p>The creditworthiness of consortium members will be relevant to the extent that it arises in the context of the recourse available to the funder, reliance on security and completion covenants and other support being granted by them.\u00a0 There may be prohibitions on the key members and sponsors transferring shares in the initial phases or at all.<\/p>\n<p>Certain risks may be insurable and insured.\u00a0 The project should be insured in accordance with normal construction practice by the contractors, subcontractors and \/or project company as appropriate.\u00a0 Awarding authorities may wish to be insured in respect of their respective interest.<\/p>\n<h3><span class=\"ez-toc-section\" id=\"Debt_Servicing\"><\/span>Debt Servicing<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>Funders may wish to have a first call on proceeds to pay their debt.\u00a0 However, there must be a recognition of the interest of the authority in ensuring that the relevant service or the structure is provided and, if damaged, is reinstated.<\/p>\n<p>There may be; accordingly, an obligation as to reinstatement provided the project is built substantially in accordance with original specifications and insurance covers the debt servicing during the reinstatement period.\u00a0 There may be circumstances where due to failure of economic tests, the monies must be applied in repayment of loans.<\/p>\n<p>The lenders and funders will be very concerned about circumstances in which the project may be terminated.\u00a0 They will wish to keep the project alive as, in the event of termination, the revenues are likely to be destroyed.<\/p>\n<p>The repayment schedule and profile will reflect the revenues. Repayments will be tailored to the relevant cash flow.\u00a0 Payments usually are rolled up during the construction phase.\u00a0 Interest may be rolled up. The minimum repayment will reflect the worst-case scenario.\u00a0 The payments are likely to be over periods that are less than the full use period.<\/p>\n<h3><span class=\"ez-toc-section\" id=\"Step-In\"><\/span>Step-In<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>The funder may negotiate a right to step in, in the event of default.\u00a0 This may involve appointing a receiver or a substitute entity to perform the services and ultimately sell the project company as a going concern to another entity.<\/p>\n<p>The funder will be concerned with provisions relating to compensation or early payment in the event of early termination.\u00a0 The funder will wish to ensure that the awarding authority does not obtain a windfall gain where it has funded the bulk of costs. Repayment of the outstanding debt may be required.<\/p>\n<p>The funders may wish to transfer their interest under the credit agreement.\u00a0 This will generally be acceptable, provided the awarding authority is advised of the identity of the funders.\u00a0 In some sensitive cases, there may be a restriction on transfer.<\/p>\n<h3><span class=\"ez-toc-section\" id=\"Security\"><\/span>Security<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>The security will not generally include effective security over the primary assets. The borrower may have no proprietary rights and such rights as it might have, may or are likely to be terminated on its default.\u00a0 The security is unlikely to be saleable in most cases, given its public purpose.<\/p>\n<p>Debt funders will seek to affix their relevant charge over the assets and undertaking of the project company revenues, monies deposited, proceeds of insurance and contractual rights of the company under the agreements.\u00a0 Security is likely to be taken over shares in the company.\u00a0 The funder will wish to maintain the integrity of the project in the event of a breakdown.\u00a0 Further control may be ensured through direct agreements with the awarding authority and subcontractors.<\/p>\n<p>The credit agreement will reflect two key phases, namely the developing phase to completion and the operating phase.\u00a0 The credit agreement will generally be required to fund the construction phase.\u00a0 It will be paid off over the period of the project from revenues.<\/p>\n<p>The loan credit agreement will be on commercial grounds, reflecting additional features reflecting the PPP element.<\/p>\n<h3><span class=\"ez-toc-section\" id=\"Purpose\"><\/span>Purpose<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>The purpose will be tightly prescribed.\u00a0 There may be separate facilities dealing with different aspects, such as construction costs.\u00a0 There may be a standby facility dealing with overruns and other financial accommodation by way of a working capital facility.<\/p>\n<p>Funders may wish to ensure monies are put to their intended purposes through a dedicated project account.<\/p>\n<p>Funds are permitted to be applied towards payments due to the construction company, expenses of advisors, fees payable to arrangers, agents etc.<\/p>\n<h3><span class=\"ez-toc-section\" id=\"Pre-Conditions_Drawdown\"><\/span>Pre-Conditions &amp; Drawdown<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>Drawdown will be permitted subject to conditions precedent.\u00a0 The general conditions precedent may include those common to most loan agreements such as<\/p>\n<ul>\n<li>company constitutional documents,<\/li>\n<li>compliance with authorisations, licenses,<\/li>\n<li>consents<\/li>\n<li>planning permissions,<\/li>\n<li>execution of all finance and security documents.<\/li>\n<\/ul>\n<p>Some documents and conditions more \u00a0specific \u00a0to PPP projects may be \u00a0required, such as<\/p>\n<ul>\n<li>copies of project documentations,<\/li>\n<li>leases, licenses, relevant agreements,<\/li>\n<li>evidence of due authorisation,<\/li>\n<li>legal opinions;<\/li>\n<li>consents required for design, construction, management and operation;<\/li>\n<li>reports on the title where necessary;<\/li>\n<li>reports of specialist advisers such as engineers, valuers etc.;<\/li>\n<li>project budgets;<\/li>\n<li>base banking case demonstrating sufficient ratio covers for key banking ratios, evidence of minimum capital etc.<\/li>\n<\/ul>\n<p>Conditions will be applicable to each drawing.\u00a0 Evidence would be that monies are applied towards the requisite use in accordance with the anticipated budget and associated financial model.<\/p>\n<p>Certification will be required that the company has the requisite funds by way of equity and subordinated debt to enable it to complete construction and achieve operation.<\/p>\n<h3><span class=\"ez-toc-section\" id=\"Representations_Warranties\"><\/span>Representations &amp; Warranties<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>Extensive representations and warranties will be required, similar to those in ordinary lending.\u00a0 In addition, project-specific covenants will be required, including<\/p>\n<ul>\n<li>validity of project agreements,<\/li>\n<li>relevant licenses, consents,<\/li>\n<li>\u00a0project company having no liabilities<\/li>\n<li>solvency;<\/li>\n<li>good title.<\/li>\n<\/ul>\n<h3><span class=\"ez-toc-section\" id=\"Covenants\"><\/span>Covenants<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>Covenants will be extensive.\u00a0 Regular progress reports will be required during construction and during the operational phase in relation to performance matters.\u00a0 Information will be required in compliance with respect to obligations, and the events causing delay and other impacts upon timing must be reported.<\/p>\n<p>There will be an obligation to ensure no event of default occurs and, if it does, to give notice.\u00a0 Insurance will be required.\u00a0 Consents, etc., must be maintained in being.<\/p>\n<p>The project company is restricted from amending of changing project agreements, authorisation and consents without permission.<\/p>\n<p>Negative covenants against acts which are adverse to the funder will apply e.g.<\/p>\n<ul>\n<li>restrictions on incurring additional debts<\/li>\n<li>not giving guarantees or\u00a0 security to others<\/li>\n<li>not disposing of rights under the agreement,<\/li>\n<li>not incurring capital expenditure other than in accordance with the budget, not changing business etc.<\/li>\n<\/ul>\n<h3><span class=\"ez-toc-section\" id=\"Events_of_Default\"><\/span>Events of Default<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>Events of default additional to those found in conventional lending may be provided for e.g. any matter which would threaten the viability of the project, such as<\/p>\n<ul>\n<li>non-completion of construction by a long stop date,<\/li>\n<li>failure to contribute to equity,<\/li>\n<li>adverse governmental action,<\/li>\n<li>insolvency,<\/li>\n<li>abandonment,<\/li>\n<li>breach of ratios etc.<\/li>\n<\/ul>\n<p>may be events of default.\u00a0 Default will allow the funder to restructure if necessary for default or step in and terminate the agreement,<\/p>\n<p>Inter-creditor agreements may be required where there is more than one funding source. They may deal with mechanisms or procedures for the enforcement of security, acceleration of relevant debt, obligations, step-in rights, etc., and procedures for agreeing on changes. Provision will be made for the application of revenues and the proceeds of enforcement.<\/p>\n<!--themify_builder_content-->\n<div id=\"themify_builder_content-19400\" data-postid=\"19400\" class=\"themify_builder_content themify_builder_content-19400 themify_builder tf_clear\">\n    <\/div>\n<!--\/themify_builder_content-->\n","protected":false},"excerpt":{"rendered":"<p>Debt Funderf Requirements The debt funders are granted security over the company&#8217;s assets.\u00a0 In effect, the sponsor&#8217;s liability is limited to their equity contribution or any other obligations they may own in another capacity. The lenders will analyse the project and undertake considerable legal, technical, and financial due diligence on the project.\u00a0 Key considerations include [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_exactmetrics_skip_tracking":false,"_exactmetrics_sitenote_active":false,"_exactmetrics_sitenote_note":"","_exactmetrics_sitenote_category":0,"footnotes":""},"categories":[58],"tags":[],"_links":{"self":[{"href":"https:\/\/legalblog.ie\/wp-json\/wp\/v2\/posts\/19400"}],"collection":[{"href":"https:\/\/legalblog.ie\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/legalblog.ie\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/legalblog.ie\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/legalblog.ie\/wp-json\/wp\/v2\/comments?post=19400"}],"version-history":[{"count":4,"href":"https:\/\/legalblog.ie\/wp-json\/wp\/v2\/posts\/19400\/revisions"}],"predecessor-version":[{"id":31324,"href":"https:\/\/legalblog.ie\/wp-json\/wp\/v2\/posts\/19400\/revisions\/31324"}],"wp:attachment":[{"href":"https:\/\/legalblog.ie\/wp-json\/wp\/v2\/media?parent=19400"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/legalblog.ie\/wp-json\/wp\/v2\/categories?post=19400"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/legalblog.ie\/wp-json\/wp\/v2\/tags?post=19400"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}