Final Take:

The final Participation.

Finance Lease:

The lessor receives lease payments to cover its ownership costs. The lessee is responsible for maintenance, insurance, and taxes. Some finance leases are conditional sales or hire purchase agreements.

Financial Close:

When the documentation has been executed and conditions precedent have been satisfied or waived. Drawdowns are now permissible.

Financing Agreements

The documents which provide the Project Financing and Sponsor support for the Project as defined in the Project Contracts.

Fixed Cost:

Operating Cost which does not vary per unit of output.

Fixed Rate:

Interest rate that is fixed for a defined period.

Float:

See IPO.

Floating Rate:

Interest rate that is reset periodically, usually every couple of months or sometimes daily.

floor:

A level which an interest rate or currency is structured not to go below.

Force Majeure:

Events outside the control of the parties. These events are acts of man, nature, governments/regulators, or impersonal events. Contract performance is forgiven or extended by the period of force majeure.

Foreign Exchange:

The conversion of one currency into another.

Forex:

FX, Foreign Exchange

Forward Contract:

Forwards. An agreement to exchange currency or interest obligations in the future. For tradeable commodities or securities, an agreement to buy or sell at a future date.

FRNs:

Floating Rate Notes where the interest is reset by a panel or by reference to a market Floating Rate.

Full recourse:

No matter what risk event occurs, the borrower or its guarantors guarantee to repay the debt. By definition, this is not a Project Financing unless the borrower’s sole asset is the project.

Funding risk:

The impact on project cashflow from higher funding costs or lack of availability of funds. Interest Risk.

Futures Market:

A market where Forward Contracts can be traded before their Maturity.

Futures:

Agreements to purchase a commodity or financial instrument at a price agreed today. These are usually tradeable on exchanges or computer trading screens.

FX Rate:

One currency unit expressed in terms of another. Foreign Exchange Rate.

FX Risk:

The effect on Project cashflow or debt service from a movement in the FX Rate for revenue, costs, or debt service.

FX:

Foreign Exchange.

Gas Turbine:

Electricity generation by way of a turbine from burning natural gas or liquid fuels.

Gearing:

The level of Debt:Equity. Interest-bearing Debt divided by Shareholders’ Equity.

General Partner:

The partner with unlimited liability.

Goodwill:

The amount paid in excess of book value on the balance sheet, usually for intangible assets such as trademarks or licences.

Grace:

After a default, days of grace may be stated within which the cure is effected. A period when interest or principal is not yet payable, usually a period after startup/commissioning/Completion in a Project Financing.

GSM :

Global System for Mobiles, a mobile phone standard.

Guarantee:

An undertaking to repay in the event of a Default. It may be limited in time and amount.

Guarantor:

A party who will guarantee repayment or performance of a covenant.

Heat Rate:

The amount of fuel required to generate a kilowatt hr ("kwh") of electricity, usually expressed as an energy value such as kilojoules (kJ).

Hedge:

To take a Forward Contract or option to effect an anticipated change in a currency, commodity, interest rate, or security, so that gains or losses are offset.

Hell-or-high-water:

An absolute commitment, with no contractual defence.

Hermes:

The trade finance agency for Germany.

Hire Purchase:

The user of the Asset is entitled to purchase the Asset according to a pre-agreed method. The user may be the owner for tax purposes.

Hurdle rate:

A minimum IRR.

IDC:

Interest During Construction. It usually equals Capitalised Interest.

IFC:

International Finance Corporation, the private enterprise arm of the World Bank.

illiquid:

Not easily traded or not readily converted to cash.

Incipient Default:

Potential Default.

Income:

Operating Cashflows less Overheads and Depreciation, either before Tax (BT) or after tax (AT). Earnings.

Inconvertibility:

Where a local currency cannot be exchanged for another currency. Often includes Transfer Risk.

Indemnity:

A legal obligation to cover a liability, however arising.

Indexed Rate:

An interest rate linked to an index, usually the CPI.

Information Memorandum:

A document detailing the Project and Project Financing usually in connection with a Syndication.

Infrastructure risk:

The impact on project cashflows from infrastructure problems. Sometimes labelled transportation risk.

Institutions:

Insurance companies, pension funds, trusts, foundations, mutual funds, funds managers, bank investment departments.

Instrument:

A financial tool. Sometimes a discrete type of funding or a Security.

Intangible Assets:

Goodwill, patents and trademark valuation, deferred charges, and share/bond premiums.

Interest Rate:

The percentage payable to the lender calculated at an annual rate on the Principal. May be All-in.

Interest Risk:

The impact on project cashflow from higher interest costs or lack of availability of funds. Funding Risk.

intermediary:

An entity standing between parties to funding or a swap. An intermediary may be at risk.

Inverse Order:

Applied to the periodic repayment schedule and means from the end, expected maturity. "Current order" means the next periodic Principal repayment.

Investment Bank:

The US term for a Merchant Bank.

investment grade:

For a rating, the rating level above which institutional investors have been authorised to invest.

IPO:

An Initial Public Offering of shares. A float.

IPP:

Independent Power Plant, a BOO development.

IRR:

The Discount Rate to make the NPV Zero. Multiple IRR’s occur mathematically if the periodic Cash Flows change sign more than once.

Islamic Loan:

Interest cannot be charged. Rather the Loan is Structured using Discounts, sale/lease, profit participation, or repurchase agreements.

Joint Venture:

JV. The legal means of dividing the Project’s equity either by shareholdings in a company (Incorporated JV) or by way of a contract (Unincorporated JV).

Junk:

A high-yield bond of speculative grade.

kJ:

Kilojoule, a measure of energy.

kwh:

kilowatt hour, a common unit of electricity. One thousand watts delivered for one hour.

L/C:

Letter of Credit, a guarantee to pay limited to an amount and time triggered by defined events or exchange of agreed documents. Used for Credit Enhancement.

Latent Default:

A Potential Default that may have always been present but unidentified.

LDs:

Liquidated Damages. The amount payable for delays and sub-standard performance under a construction, equipment supply, or O & M contract.

Lead Arranger:

The senior tier of Arranger.

Lead Bank:

A senior bank involved in the negotiations for a Project Financing. Subordinate to an Arranger. Lead Manager.

Lead Manager:

Senior tier of lender in a Loan Syndication.

League Tables:

A ranking of lenders and advisers according to the Underwriting, Final Take, or number of Project Finance loans or advisory Mandates.

Lease Rate:

The equivalent Interest Rate calculated from a stream of lease payments.

Lease Term:

The life of a Lease including any renewal options.

Lease:

The owner of an Asset (Lessor) agrees to receive lease payments/rentals from the user (Lessee), usually at a fixed rental level. The Lessor/owner takes the benefit of Depreciation as a tax deduction. Its primary Security is the Asset.

Legal risk:

A risk that a defect in the documentation will affect cashflow or Debt Service.

Lessee:

The user who pays Lease rentals to the owner/Lessor.

Lessor:

The owner of a Leased Asset.

Leverage:

The level of Debt expressed as a percentage of Equity or as a ratio to Equity. The US/Canadian word for Gearing.

Leveraged Lease:

A Lessor borrows to finance a leased Asset. Recourse may be limited to the Lease rentals or the Asset.

Liability:

The obligation to repay a defined amount or to perform a service.

LIBOR:

London Interbank Offered Rate, often quoted as a 1,3,6-month rate for US$.

Lien:

A legal Security interest in an Asset.

Limited-Recourse:

Under certain conditions (legal or financial), there is access to the Sponsor(s)’ credit or other legal security for repayment (besides the Project’s cashflows). There is usually Recourse in the event of fraud or misrepresentation/non-disclosure -- thus "Non-recourse" is better described as "Limited-Recourse."

liquid:

Easily traded or converted to cash.

Liquidation:

The process of disposal or sale of the project or project Assets with the proceeds used to repay the Project Financing.

Long-term:

3 years or more. Accounting: more than 1 year.

loss payee:

A party to whom an insurance loss payment or settlement may be paid directly.

LP:

Limited partner who is not liable for the debts of the Partnership beyond the funds contributed.