Recently, there has been a rise in the number of infrastructure bonds issued, largely as a result of the low interest rate environment, the lack of suitable (institutional) investment opportunities, lack of banking licenses of some market participants and regulatory challenges of certain banks. The below tables, on a high level, present a general overview of differences between project finance loans and infrastructure bonds.
General Overview
| Infrastructure Bonds | Project Finance Loans | |
|---|---|---|
| Term | Short, medium, long | Generally medium to long |
| Investor Base | Wide base, anonymity | Banks, known |
| Confidentiality | Public disclosure (if applicable) | Disclosure to banks only |
| Regulation | Highly regulated (e.g. securities regulation) | Less regulated |
| Ratings | Generally required | Unrated |
| Covenants | Generally light | Extensive |
| Project Monitoring | Passive | Active |
Transaction Parties – Infrastructure Bonds
| Task | Documents | |
|---|---|---|
| Issuer | Issue notes | Global Note, Terms + Conditions, Subscription Agreement, Agency Agreement |
| Guarantor | Guarantees obligations of Issuer | Guarantee, Subscription Agreement |
| Lead Managers | Subscribe notes and place them with investors | Subscription Agreement |
| Paying Agent | Handles issuance process and payments | Paying Agency Agreement |
Transaction Parties – Project Finance Loans
| Task | Documents | |
|---|---|---|
| Mandated Lead Arranger | Arranges the primary syndication | Mandate Letter |
| Underwriter (Original Lender) | Underwrites the facilities | Commitment Letter |
| Documentation Agent | Negotiates and administrates the documentation | Mandate Letter |
| Bookrunner | Accepts commitments and allocates participations in the facilities | Mandate Letter |
| Facility Agent | Receives and distributes payments and information | Credit Agreement |
| Lenders | Participate in syndication | Credit Agreement |
| Security Trustee | Holds and administrates the collateral for the finance parties | Security Trust / Intercreditor Agreement |
| Borrower | Borrows the credit facility | Credit Agreement |
| Guarantors | Grant guarantees and other security | Credit Agreement, Security Trust / Intercreditor Agreement |