Under non-recourse project finance, lenders can be paid only from the project company's revenues, without recourse to the equity investors. That is, the project company's obligations are ring-fenced from those of the equity investors, and debt is secured on the cash flows of the project. As described in Yescombe's chapter on project finance for PPPs [#295] project finance structures typically involve a large proportion of debt. In many cases, it ranges from 70 to 95 percent of total finance. From the equity investors' perspective, this helps manage risk, by limiting exposure to a project, and makes it possible to undertake much larger projects than would otherwise be the case. For lenders, it means undertaking rigorous due diligence, focusing on the project cash flow and contractual structure.
There is a large literature on project finance structures, including several comprehensive text books. The following books provide a starting point for readers interested in exploring the subject further:
• Benjamin C. Esty (2004) Modern Project Finance: A Casebook, Hoboken, USA: John Wiley and Sons
• Scott L. Hoffman (2008) The Law and Business of International Project Finance: A Resource for Governments, Sponsors, Lawyers, and Project Participants (2nd ed.) New York: Cambridge University Press
• E. R. Yescombe (2013) Public-Private Partnerships: Principles of Policy and Finance, 2nd edition, Oxford: Elsevier Science
• John D. Finnerty (2007) Project Financing: Asset-Based Financial Engineering, Hoboken, USA: John Wiley and Sons