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Project Financing

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Definition of Project Financing

Project Financing Image 1

Project Financing

Debt finance, usually non-recourse, provided by financial institutions for the development and construction of a new project.



Related Terms:

Dividend clawback

With respect to a project financing, an arrangement under which the sponsors of a project
agree to contribute as equity any prior dividends received from the project to the extent necessary to cover
any cash deficiencies.


Economic risk

In project financing, the risk that the project's output will not be salable at a price that will
cover the project's operating and maintenance costs and its debt service requirements.


Project notes (PNs)

project notes are issued by municipalities to finance federally sponsored programs in
urban renewal and housing and are guaranteed by the U.S. Department of Housing and Urban Development.
project financing A form of asset-based financing in which a firm finances a discrete set of assets on a standalone
basis.
projected benefit obligation (PBO) A measure of a pension plan's liability at the calculation date assuming
that the plan is ongoing and will not terminate in the foreseeable future. Related:accumulated benefit obligation.


Purchase agreement

As used in connection with project financing, an agreement to purchase a specific
amount of project output per period.


Raw material supply agreement

As used in connection with project financing, an agreement to furnish a
specified amount per period of a specified raw material.



Asset-based financing

Methods of financing in which lenders and equity investors look principally to the
cash flow from a particular asset or set of assets for a return on, and the return of, their financing.


Asset-Based Financing

Loans granted usually by a financial institution where the asset being financed constitutes the sole security given to the lender.


Project Financing Image 2

Back-to-back financing

An intercompany loan channeled through a bank.


Bridge financing

Interim financing of one sort or another used to solidify a position until more permanent
financing is arranged.


Cash Flow Provided or Used from Financing Activities

Cash receipts and payments involving
liability and stockholders' equity items, including obtaining cash from creditors and repaying
the amounts borrowed and obtaining capital from owners and providing them with a return on,
and a return of, their investments.


CASH FLOWS FROM FINANCING ACTIVITIES

A section on the cash-flow statement that shows how much cash a company raised by selling stocks or bonds this year and how much was paid out for cash dividends and other finance-related obligations.


Conventional project

A project with a negative initial cash flow (cash outflow), which is expected to be
followed by one or more future positive cash flows (cash inflows).


Cost of lease financing

A lease's internal rate of return.


Debt Financing

Raising loan capital through the creation of debt by issuing a form of paper evidencing amounts owed and payable on specified dates or on demand.


Debtor-in-possession financing

New debt obtained by a firm during the Chapter 11 bankruptcy process.


Export Financing

A range of financing products (loans. guarantees, letters of credit, insurance etc.) in support of a variety of activities which help Canadian firms expand into new export markets.


Project Financing Image 3

Federal Financing Bank

A federal institution that lends to a wide array of federal credit agencies funds it
obtains by borrowing from the U.S. Treasury.


financing activities

One of the three classes of cash flows reported in the
statement of cash flows. This class includes borrowing money and paying
debt, raising money from shareowners and the return of money to
them, and dividends paid from profit.



financing decision

a judgment made regarding the method
of raising funds that will be used to make acquisitions; it
is based on an entity’s ability to issue and service debt and
equity securities


financing decision

Decision as to how to raise the money to pay for investments in real assets.


Financing decisions

Decisions concerning the liabilities and stockholders' equity side of the firm's balance
sheet, such as the decision to issue bonds.


Financing Instruments

This is a generic term that refers to the many different forms of financing a business may use. For example - loans, shares, and bonds are all considered financing instruments.


Independent project

A project whose acceptance or rejection is independent of the acceptance or rejection of
other projects.


independent project

an investment project that has no specific
bearing on any other investment project


Independent Projects

A situation where an increase (or decrease) in the benefits of one
project has no effect on the benefits of another project. Also, a
situation where the acceptance of one project does not preclude
the acceptance of another project.


Make-Work Project

A project, such as digging holes and filling them up again, that has no useful purpose other than to make work.


Multi-option financing facility

A syndicated confirmed credit line with attached options.


Project Financing Image 4

mutually exclusive projects

a set of proposed capital projects from which one is chosen, causing all the others to be rejected



mutually exclusive projects

Two or more projects that cannot be pursued simultaneously.


mutually inclusive projects

a set of proposed capital projects that are all related and that must all be chosen if the primary project is chosen


Net financing cost

Also called the cost of carry or, simply, carry, the difference between the cost of financing
the purchase of an asset and the asset's cash yield. Positive carry means that the yield earned is greater than
the financing cost; negative carry means that the financing cost exceeds the yield earned.


Off-balance-sheet financing

financing that is not shown as a liability in a company's balance sheet.


Planned financing program

Program of short-term and long-term financing as outlined in the corporate
financial plan.


Production payment financing

A method of nonrecourse asset-based financing in which a specified
percentage of revenue realized from the sale of the project's output is used to pay debt service.


Project

An investment opportunity for a company


project

the purchase, installation, and operation of a capital asset


project cost of capital

Minimum acceptable expected rate of return on a project given its risk.


Project loan certificate (PLC)

A primary program of Ginnie Mae for securitizing FHA-insured and coinsured
multifamily, hospital, and nursing home loans.


Project loan securities

Securities backed by a variety of FHA-insured loan types - primarily multi-family
apartment buildings, hospitals, and nursing homes.


Project loans

Usually FHA-insured and HUD-guaranteed mortgages on multiple-family housing complexes,
nursing homes, hospitals, and other development types.


Projected available balance

The future planned balance of an inventory item,
based on the current balance and adjusted for planned receipts and usage.


Projected maturity date

With CMOs, final payment at the end of the estimated cash flow window.


Projection

Future-oriented financial information prepared using assumptions that reflect the entity's planned courses of action for the period.


Refinancing (Credit Insurance)

Extending the maturity date or increasing the amount of existing debt or both. Also, revising a payment schedule, usually to reduce the monthly payments and often to modify interest charges.


Seed Financing/Capital

Generally, refers to the first contribution of capital toward the financing requirements of a start-up business.


Threshold for refinancing

The point when the WAC of an MBS is at a level to induce homeowners to
prepay the mortgage in order to refinance to a lower-rate mortgage, generally reached when the WAC of the
MBS is 2% or more above currently available mortgage rates.


total expected value (for a project)

the sum of the individual cash flows in a probability distribution multiplied by their related probabilities


All equity rate

The discount rate that reflects only the business risks of a project and abstracts from the
effects of financing.


BAN (Bank anticipation notes)

Notes issued by states and municipalities to obtain interim financing for
projects that will eventually be funded long term through the sale of a bond issue.


Cost company arrangement

Arrangement whereby the shareholders of a project receive output free of
charge but agree to pay all operating and financing charges of the project.


Financial planning

The process of evaluating the investing and financing options available to a firm. It
includes attempting to make optimal decisions, projecting the consequences of these decisions for the firm in
the form of a financial plan, and then comparing future performance against that plan.



 

 

 

 

 

 

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