Project Financing

Arrangement used to finance mainly large capital projects such as energy explorations, oil tankers, refineries, utility power plants, and so on.  Usually,one or more firms (sponsors) will provide the equity capital required by the project, while the rest of the project's capital is supplied by lenders and lessors.  The most important aspect of project financing is that the lenders and lessors do not have recourse against the sponsors; they must be repaid from the project's cash flows and the equity cushion provided by the sponsors.