Credit enhancement

Credit support from sponsors and sub-contractors. Sponsors will often be required by senior lenders to put in place certain credit-enhancement measures that take some of the risk away from those senior lenders (and in some cases, equity holders). These can take a variety of forms, including the following:

□  Guarantees by the sponsors and third parties relating to the performance of the project company's14 or other participants'15 obligations under the project documentation.

□  Financing facilities that provide temporary liquidity to deal with specific risks (e.g. a large depreciation of the local currency).

□  Insurance against certain project-related risks (e.g. construction risks, loss of revenue, third party liability, environmental liability, etc.).

Public sector support. State support instruments may also be deployed, for example:

□  Direct funding support by way of public sector capital contributions. These may come from national, regional or specific funds for TEN-T (visit EPEC and TEN-T EA websites for more information). They may be designed to make a project bankable or affordable.

□  Contingent support or guarantees by the State to the project company or other private sector participants for certain types of risks which can not otherwise be effectively managed or mitigated by the project company or other private sector participants (e.g. minimum revenue guarantee for a toll road).

Loan Guarantee for TEN-Transport (LGTT). LGTT is a unique credit enhancement instrument which is specific to TEN-T projects in which the private sector takes traffic risk (visit EPEC, TEN-T EA) <5>

One important consequence of employing LGTT in the financing structure is that this will usually reduce the risk of a state guarantee being called.

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14  For example, standby or guarantee letters of credit used to protect against the project company's failures to meet its payment and other obligations due by it under the project agreements.

15  For example, performance bonds callable in case of the contractor's failure to perform the terms of the construction contract. Parent company guarantees will also often be required from construction and other service sub-contractors.