Lenders’ Direct Agreement in Public-Private Partnership Projects

Abstract

In order to drive public-private partnership projects to success, there has to be coordination from several stakeholders, including the government, public authority (a public-sector counterparty), financial institutions, investors and other participants. These kinds of projects are counting on a great amount of capital funding from equity and debt. In light of debt, the developers will typically use project finance as a financing mechanism. One of the indispensable factors is the structure of projects and public-private partnership contracts. These structures must be acceptable from the lender’s perspective since it can have a direct impact (either positive or negative) on the ability of the developers to access any source of capital (also known as bankability). This paper primarily focuses on uncertainty of the right to cure the private party’s default by the lenders before the public authority exercising the right to termination. The paper then analyses how lenders’ direct agreement in which the public authority is required to sign with the lenders resolves the problem. This paper enumerates some constraints of the lender’s direct agreement in terms of legal and practical aspects. Finally, the conclusion is provided.