Project financing with SERV

Investment plans often have a very large financing requirement, entailing commensurately high investment risk. If the project is to be realised using traditional credit financing, the project’s sponsors have to borrow the necessary debt capital. That places a strain on their balance sheets and affects capital structure ratios, which can result in a deterioration in credit quality. The solution is often to implement the project with the help of project financing, which involves creating a standalone project company.

In short, a project financing structure is where a major investment plan is not directly financed by the project’s sponsors, but by the project itself, via a proprietary project company.
Project financing exists when the following factors are in place: 

• Project company: The plan is implemented via an economically independent single-purpose company. The loan is repaid from the project’s income.
• Cash flow basis: The financing is based on the project’s revenues (cash flow-related lending).
• Off-balance-sheet financing: The loans do not appear in the investors’ balance sheets, but on those of the project company (off-balance-sheet financing).
• Greenfield projects: This is a new project encompassing both the construction and operational phases.

A project financing structure is often chosen for large-volume investments. SERV insures this project financing – generally in combination with buyer credit insurance – thus protecting buyers, banks and exporters around the world.

Buyer credit insurance  is used for most cases involving project financing. Where needed, this can be combined with other SERV products; for example, SERV’s insurance can also cover manufacturing and non-disbursement risks for exporters and payment risks for the financing bank. 

The following risks are insured

• Political risk
• Commercial risk
• Transfer risk

Learn more about types of risk

SERV evaluates the project financing using a financial model. The central measure it considers is the debt service cover ratio (DSCR), which evaluates the viability of the financing.

Every project financing structure is different, meaning that the requirements are highly project-specific, and the spreading of risk is invariably relevant. A project is acceptable to SERV if it meets conditions that include the following (non-exhaustive list). 

• The project’s sponsors must have an equity interest of sufficient size
• Guarantees must be in place to minimise the completion risk (e.g. via limited recourse financing)
• Projects must be for turnkey EPC contracts, not simple supply contracts
• Measures to safeguard operation and acceptance must be in place, e.g. via government support in the project country
• A package of collateral for the project financing must be in place
   

The OECD Arrangement for Officially Supported Export Credits allows adjustments to repayment plans and extended repayment breaks when required by the project’s cash flows.

An external consultant is generally used to evaluate the viability of a project and review the documentation, with the project’s sponsors bearing the associated costs. SERV does not assume any documentation risk. 

SERV offers flexible insurance solutions that facilitate the success of Swiss export plans worldwide. Reap the benefits of SERV’s personalised support and custom-designed financing and insurance concepts for your large projects.

SERV is here to act as your trusted partner for financing and risk protection.