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What is Collateral in Project Finance?

Below is an overview to assist project owners. Please note however that each project is unique. If your project meets financing criteria, we can work together to develop customized solutions.

Guidance Notes on Acceptable Collaterals

Investment Grade Rating:

This is required for All Projects applying for our Lenders' Project Funding products. 

 

All projects must meet certain requirements to be considered prime investment grade.

 

These requirements include having bankable investment-grade collateral and receiving a rating of AAA or AA from Moody's, S&P, or Fitch.

 

Additionally, the projects should have Long-Term Offtake and Feedstock Agreements with established companies that have investment-grade status or are considered blue-chip companies.

 

The countries where the projects are located should also have investment-grade status and pose low risks for Anti-Money Laundering (AML).
 
The non-bank lender (e.g. Institutional Funds, Family Offices) may consider various forms of collateral such as SBLCs, BGs, Corporate Guarantees, as well as Government Bonds, Municipal Bonds, Sovereign Bonds, and Treasury Bonds.

 

Hard assets may not be used as collateral, as it is difficult to foreclose or repossess hard assets (e.g. real estate or personal assets) in jurisdictions outside of the United States of America. Although hard assets are not the primary collateral, they can be used to enhance credit.

Acceptable Collateral Forms:

Bank Guarantees (major banks only), Commercial Real Estate (CRE), Corporate Guarantees, Credit Enhancements, Debt Instruments (e.g., corporate bonds, US treasuries, municipal bonds, etc.), Future Contracts, Insurance Guarantees, Investment Portfolio (traded securities, bonds, commodities, cash, etc.), Letters of Credit (investment grade), Offtake Agreements, Sovereign Guarantees.

What is Collateral? 

Collateral is an asset that serves as security for project finance loans provided by the lender.  Collateral refers to an item of value that is utilized to secure the project financing, which is essentially the loan.

 

Each project may have different types of collateral, and, since the lender may provide up to 100% of the project funding (namely, the whole capital stack), the lender may utilize various collateral types to fund the entire project. The purpose of collateral is to protect the lender, and it serves as a form of security in case of default by the project or borrower.

 

In the event of default, the lender can seize the collateral to recover its losses. Collateral adds validation to the project and increases the chances of its success while minimizing the lender's risk.

How Collateral Works:

Prior to providing funding, the lender needs to ensure that the project has the capability to repay the loan and safeguard the lender's interests. Collateral is required as a form of security to protect the lender's funding.

 

In situations where there are no initial assets, such as during the construction phase of a project, temporary collateral may be utilized to ensure that the borrower meets its financial obligations until the project is completed. This guarantees that the project will be able to repay the loan and protects the lender's investment.
 
Collateral can come in various forms depending on the nature of the project funding loan. A commercial property mortgage, for instance, may require collateral in the form of the property itself.

 

In some cases, institutional credit may be used as security, provided by a credit-worthy co-signer or borrower with a credit rating from Moody's, S&P, or Fitch.


For project finance loans, collateral typically includes the pledge of interest in the credit-worthy borrowing group, as well as all the assets associated with the project.

Project Assement Form:

For project funding inquiries, we request that you fill out our Project Pre-Assessment Form. This is to ensure that we can give proper attention to each project submission and progress only those that meet our funding criteria.

The Project Pre-Assessment Form is a generic business plan that needs to be completed and submitted by Project Owners or Project Sponsors. Please review and complete the form, providing as much information as possible regarding your request for Capital. 

 

In the form's upload section, you are welcome to upload any supporting documents, such as a Project Executive Summary, Project Investment Deck, or Feasibility Study.

It is important to provide detailed responses to the questionnaire, so please make sure you have provided as much information as possible. This is because the Project Pre-Assesment Form is the first (and often the only) document that will be reviewed to help us determine if your project aligns with our funding criteria.

After receiving your Project submission, we will review it and request any additional details that are needed to evaluate if your project meets the funding criteria.

 

If your project meets funding criteria, we will provide you with information on the next steps. 

To access the form, please visit www.dpfunding.co/application.

As a guideline, we generally look for projects seeking a minimum of $250M with collateral of at least 20% of the CAPEX.  

We are in the Project Financing Procurement:

Project finance refers to the financing of public services, industrial projects, and long-term infrastructure using a financial structure that is non-recourse or limited recourse. The funds used to finance the project are a combination of equity and debt, and they are paid back from the cash generated by the project.
 
One of the main benefits of project financing is that it allows for financing of the project off the balance sheet, which means it will not impact the credit of the shareholders or government contracting authority. This also shifts the project risk to the lenders, who in turn receive a higher margin. 
 
Additional instances of project finance involve mining, oil and gas, construction, and building projects. Ordinarily, the funding is composed of debt. The capital stack determines the hierarchy of different financing sources. Senior and subordinated debts are classified according to their position in a business' capital stack.

Explore Project Funding Products.

Disclaimer:

The Lenders, DPFUNDING and their Advisors are not a United States Securities Dealer, wealth manager, advisor, banker, securities trader or registered broker-dealer and follow under the SEC Reg D Exempt Criteria.

 

This website and its contents, verbal and written communications should never be considered a solicitation for any purpose in any form or of its content here within.

 

The information provided in this email communication and its attachments are not a solicitation or a securities offering under SEC Regulation.

 

This website and its contents is for informational purposes only.

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