A public infrastructure project may have attractive projected revenues and still be unfinanceable because lenders cannot protect the cash flows or recover value after a prolonged default. Bankability is determined by the allocation of risks and the enforceable rights available when the project underperforms.
Revenue certainty is more than a forecast
Lenders examine the entity responsible for payment, the conditions to earning revenue, demand or availability risk and the consequences of disputed performance. A public-sector undertaking should be read against the authority of the agency giving it and the applicable fiscal or procurement framework. A financial model assuming prompt government payment is insufficient where the concession contains broad withholding powers and no credible payment-security mechanism. The documents should distinguish certified receivables, disputed sums and revenue assumptions dependent on future approvals.
Step-in rights need an operational pathway
A direct agreement may allow lenders to receive default notices, cure specified breaches or arrange substitution of an operator before termination. Those rights must be compatible with the underlying concession, permits and licences. A lender cannot necessarily place an unqualified substitute into a regulated facility without required approval. The step-in process should identify the notice periods, authority to operate, treatment of employee and subcontractor arrangements and release of the original sponsor. Rights that cannot be implemented within the available cure period may offer little real protection.
Termination compensation should correspond to debt exposure
A project may terminate due to concessionaire default, authority default, prolonged force majeure or another defined event. Each ground can justify a different compensation formula. Lenders will examine how senior debt, breakage costs, equity and outstanding claims are treated and whether funds can be paid without extended litigation. A termination payment dependent on an undefined 'fair value' invites delay when an independent valuation is most urgently required. The contract should set out clear calculation methods and workable dispute procedures without promising recoveries inconsistent with public law.
Security and insolvency protections must connect
The SPV's assets, shares, bank accounts, receivables and contractual rights may support financing. Security interests require proper creation and perfection, and their enforcement may depend on regulatory permissions or concession restrictions. Lenders should examine whether account waterfalls and cash controls survive default and whether other creditors hold competing priority. A project vehicle with no meaningful asset transfer or substitution rights may be difficult to rescue even where lenders possess extensive security documents.
Model what happens after payment default
Bankability is measured by what lenders can lawfully do when assumptions fail. Payment security, step-in rights, termination compensation and perfected collateral should be negotiated as an integrated package. The project is stronger when those protections also permit continued public service rather than merely facilitate enforcement.
When the issue arises in practice.
Our advice begins with the governing documents, the legal position and the decision that needs to be made.
DISCUSS THIS MATTERThis publication is for general information and does not constitute legal advice on any particular matter.