As noted above, project finance lenders exclusively or mainly rely on project cash flow. Lenders' security arrangements reflect this and consist mainly of:
□ Secured interests over all the project assets (including and especially all contracts) to enable the lender to "step in" if the project has failed and temporarily play the role of concessionaire and see to the appointment of a replacement.
□ Controls over all cash flows going into and coming from the project company. As noted above, loan contracts and other project documents will establish the "waterfall" for the use of cash coming into the project company. This will ensure that senior debt service always has priority. In addition, it will define the circumstances in which senior lenders are able to prevent equity distributions ("lock up"). This will usually be defined in terms of the performance of project financial ratios such as ADSCR and the Loan Life Cover Ratio (LLCR).16
□ Cash flow controls in the form of reserve funds (debt service reserve account, maintenance reserve account).
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16 The LLCR is defined as the ratio of the net present value of cash flow available for debt service for the outstanding life of the debt to the outstanding debt amount.