Though every loan agreement is unique, financiers will generally seek certain levels of security and comfort within a project, including the provision to 'step-in' if the primary contractor is not performing its obligations as contracted. Loan agreements will contain many structural features and covenants including:
• The prevention of asset substitution;
• Revenue or rate covenants that specify a minimum coverage of debt service and definitions of default;
• Specific financial documentation needed in order to monitor the progress of a project52;
• An order of priority of payment for operating expenses, debt service, and other obligations. This may also include restrictions on making equity distributions if coverage ratios fall below certain levels;
• A restriction on additional debt, other than that initially agreed upon, in order to prevent excess leverage;
• Required reserved funds for things such as debt servicing, operating reserves, maintenance requirements, and slower than anticipated ramp up, and unforeseen problems;
• Covenants designed to maintain operational viability and to keep the facility in good condition;
• Timing and process structures that provide sufficient advance warning triggers during periods of economic or operational downturns;
• Recourse to assets - this may be limited by property ownership rights or valuation of an asset.
iv. National Highways Authority of India ("NHAI")53
The NHAI is responsible for the development, maintenance and management of India's national highways. In order to promote private participation in the construction and maintenance of the national highways, some projects have been developed on a Build Operate and Transfer basis. The following is the financing portion of the various concession agreement models used.
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52 See Appendix 6 - Sample Financial Information requirements
53 Complete document can be accessed at www.nhai.org/concessionagreement.htm