from the brain of: Libby Elizabeth

Sep 2021

Direct Agreement Is

A direct agreement is an agreement that grants project lenders direct rights to certain important project documents. These rights are explained in direct agreements in the context of project financing transactions – key provisions. In the first PFI projects, it was customary to have separate agreements for different phases of the project, such as for example. B a development agreement for the design and construction phase and an operations management or facility management agreement for the operation phase. Today, however, it is more common to have a single project agreement covering all aspects of the project. Direct agreements are also generally referred to as “tripartite agreements”, which reflects the fact that it is an agreement between three parties, i.e.: • the ability of lenders to participate in the notification, during the period indicated or after a failure event under the facility agreement, that they designate an organization that takes over the rights and obligations of the project company in the project document; A direct agreement often involves changes to the underlying project documents. This is especially true for concession contracts for which the project company obtains the concession before the lenders are heavily involved. Financing often follows the award of the concession and lenders may require changes to the risk allocation in the concession contract in order to make the project bankable. Service contracts: Projectco concludes service contracts with service providers and transmits to these contractors the service obligations imposed on it under the project agreement.

As noted above, service providers provide guarantees to the Authority and, in certain circumstances, the Authority has registration fees, again subject to the rights of lenders. Where appropriate, a direct agreement may include clauses in which the counterparty to the project document agrees to the collection or assignment as security of the project company`s rights contained in the project document. Direct agreement of lenders: this is a tripartite agreement between the Authority, Projectco and the lenders, under which the Authority undertakes to give the lenders a period of time to announce in advance the imminent termination of the project agreement. This Agreement also provides lenders with the opportunity to intervene, either directly or through a nominee or representative, to remedy the termination event or to find another party acceptable to the Authority to assume Projectco`s rights and obligations under the Project Agreement. In addition to the agreement that the counterparty agrees not to terminate the contract if it has the right to do so in accordance with the project document, it will also accept that the step-by-step process may be triggered by the notification by lenders of notification of a project company`s default under the Facility Agreement, by implementing the guarantee or accelerating the loan. Equity investors: lenders or sponsors of projects who do not expect to play an active role in the project.

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