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Collateral, Security and Guarantee Structuring in Project Finance
Understanding Asset-Backed Security, Bank Guarantees and Collateral Requirements
Collateral, Security and Guarantee Structuring in Project Finance
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Collateral and security structuring sit at the heart of every project finance transaction, determining how risk is shared between the borrower and the lender and directly influencing the terms on which finance can be arranged. Understanding what collateral is required, how it is valued and how guarantees are structured is essential for any project owner preparing a large scale finance application. Prime Project Fund advises project sponsors on collateral and security structuring for qualifying loans from $10 million USD.
Types of Collateral Used in Project Finance
- Physical assets - land, buildings, plant and equipment
- Project revenue and contracted cash flows, assigned to the lender
- Shares or equity interests in the special purpose vehicle
- Bank guarantees and standby letters of credit
- Insurance-backed guarantees and performance bonds
Bank Guarantees and Letters of Credit
Bank guarantees and standby letters of credit are frequently used alongside physical collateral to provide lenders with an additional layer of security, particularly where the underlying project asset is still under construction and has not yet reached full value. These instruments are typically issued by a reputable financial institution on behalf of the project sponsor and can materially improve the terms available on a project finance facility.
Collateral Development and Valuation
Where collateral does not yet exist in its final form - such as land earmarked for development, or a project still at feasibility stage - lenders will typically require an independent valuation and a clear development plan showing how the collateral value will be created over the construction period. Prime Project Fund works with project sponsors to understand collateral development requirements as part of the due diligence process.
Structuring Security for International Transactions
Cross-border project finance transactions often require security structures that are enforceable across multiple jurisdictions, involving local counsel input and careful structuring of the security package to protect the interests of both borrower and lender. This is particularly relevant for projects across Africa, South America, the Far East and Turkey, where Prime Project Fund has extensive experience structuring international security arrangements.
Apply for Project Finance
If you are preparing a project finance application and want to understand the collateral and security requirements involved, Prime Project Fund invites you to submit your project details through our Funding Application for an initial assessment from $10 million USD.
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