a type of Non-Recourse Financing or Limited Recourse Financing whereby debt is incurred by a project developer (known as the “project company,” which is formed by a “project Sponsor”), often in combination with equity contributed by the project Sponsor, to finance the development and construction of a capital-intensive project, such as a power plant or toll road, typically by means of construction loans that later convert to Term Loans upon completion of the project. A primary feature of Project Finance is that the Lenders advance debt on the basis of their evaluation of the projected revenue-generating capability of the project, rather than the credit quality of the project Sponsor or the value of the project assets. The equity of the project company and the project assets, including the project’s revenue-generating contracts and other cash flows, are pledged as Collateral for the debt.
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