1.3  The Financiers

The financing of a project will be made up of different amounts of debt and equity3, the source and structure of which will vary depending on the project.  As previously mentioned, the equity financing will generally be provided by the private sponsors, in exchange for ownership in the SPV.  

Figure 1 - 4

The balance of the financing is usually, though not always, provided using project financing.  Project financing, unlike traditional lending, is based on the financial strength of a project with little or no recourse4 back to the sponsor(s), thus the specific risks of that project remain separate from the existing business of the sponsors.  In the case where project financing is being used, the SPV borrows the funds and the debt is paid back using the cash flow generated from the project.  

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3  To be discussed in Chapter 2

4  Recourse refers to the ability of creditors to seek financial compensation for funds lent to a project, such as interest and/or principal.