Best Project finance lawyers in Canada as ranked by LexpertThe practice area of project finance lawyers may be defined as non-recourse or limited recourse financing in which debt, equity and credit enhancement are combined for the construction and operation or refinancing of a particular facility in a capital-intensive industry, in which lenders base credit risk and recourse on the asset value and projected revenues from the facility combined, in some cases, with limited sponsor support, rather than the general assets or credit worthiness of the sponsor.
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Project finance is a financial structure where a creditor funds or finances a long-term project owned by a debtor, which is to be paid using the income to be generated by the funded or financed project. This may be done either through a non-recourse financial structure, or limited recourse financial structure.
In a non-recourse project finance, in case of the debtor’s default, the creditor may only foreclose the collateral provided by the debtor and cannot go after the debtor’s other properties if the foreclosed property does not wholly satisfy the amount of the debt. While in a limited recourse project finance, the creditor may proceed with some, but not all, of the other properties of the debtor.
Hence, a project finance’s financial structure depends on the future income of the funded project, and not on the creditworthiness of the debtor as in the case of other loan structures.
In Canada, owing to these characteristics of a project finance, it is usually used in funding long-term projects such as public infrastructure, industrial, and public utility projects such as education, recreation, transportation, healthcare, cultural, and energy projects.
When entering a project finance contract, a project finance lawyer provides extensive services for any of the parties involved in the contract – the debtor, creditor, insurer, contractor, among others.
The project finance lawyer would primarily be involved in the drafting and negotiating of the contract on behalf of the client, and even up to its restructuring if there would be necessary and consensual changes to it, since most project finance is usually used for long-term projects and adjustments may have to be made during the project implementation.
Because some project finance contracts may involve a public-private partnerships (PPP), a project finance lawyer may also represent the government sector.
Project finance and corporate lending/finance are both financial structures which are generally dependent on debts and loans to fund the financial needs of a debtor. However, there are some differences between the two.
As such, it is better to seek the advice of a project finance lawyer to check whether project finance or corporate lending is the best financial structure for a loan or debt. You will find a list of the best project finance lawyers in Canada below.
Usually, corporate lending or financing is resorted to by a debtor-company to start-up their business by setting up their capital, putting up funds for the operations, and other needed financial structuring to initially run the business. However, project finance is used by a debtor-company when it has a distinct project (or expansion) in mind which needs capitalisation.
For a debtor-company to avail a loan under the corporate lending or financing, it must show that there are minimal risks involved and that the company’s assets are sufficient to cover the loan or debt if the debtor-company would default on its payments.
In contrast, under a project finance, the debtor-company will be judged by the creditor based on if it could show that the specific project’s projected revenues are adequate to answer for the loan or debt.
In corporate lending or financing, any or all of the assets of the debtor-company may be held as security or collateral to the loan or debt. In addition, when a company declares bankruptcy under a corporate finance structure, the creditor may also proceed against these assets as a secured creditor.
While in project finance, it is usually the debtor-company's assets and cash flows in the project that is offered as security or collateral, although, as stated above, it may also be done through a non-recourse financial structure or a limited recourse financial structure. This results in a “ring-fenced” arrangement, which limits the creditor’s claim over the rest of the properties of the debtor-company, having been excluded from the project that the creditor has financed.
When problems arise in the debtor-company's operations, it would have great effect on its capability to pay the corporate financing it acquired, since what has been loaned for and the company operations itself are herein merged.
This is not the case in project finance, since the project funded by the loan is “ring-fenced” against the other projects of the debtor-company and the debtor-company itself. It also follows that the amount of loan would depend on the risk – the higher the risk, the lower the approved amount of loan or debt would be, and the other way around.
Numerous agencies regulate financial services in Canada. One of which is the Financial Consumer Agency of Canada (FCAC), the federal government agency which regulates banks and other financial institutions, such as trust and loans companies, retail associations, and insurance companies.
The FCAC may also receive complaints against the improper practices of these financial institutions according to legislations, code of conducts, and other public policies. Thus, debtor-companies under a project finance scheme, through their project finance lawyer, may check with the FCAC if the creditor it transacts with is regulated and compliant with such regulations.
In connection with the FCAC, a project finance lawyer also coordinates with the Office of the Superintendent of Financial Institutions (OSFI), which also regulates banks and other financial institutions, but specifically sees the financial stability of these institutions. Depending on the specific sector which a project belongs to, and if it’s under a PPP, federal and provincial or territorial government departments may also be involved in the regulation, although not specific to financial services, but in other matters which all parties to a project finance contract must consider.
In relation to PPPs, the Canada Infrastructure Bank Act established the Canada Infrastructure Bank (CIB), a Crown corporation which invests in PPPs, such as public infrastructure and industrial projects. The CIB also accepts investments from the private sector in support of such PPPs. As such, the CIB partners with the different level of public entities in the federal, provincial, territorial, municipal, and Indigenous government, including the private investors through a project finance lawyer, on the prioritisation of PPP projects and on its implementation.
Interested in entering a project financing contract for your business? Seek the advice of the best project finance lawyers in Canada by heading down below to our Lexpert Ranked list.
