Loans for large projects

The EBRD's loans are structured with a high degree of flexibility to provide loan profiles that match client and project needs. This approach determines each loan currency and interest rate formula.

The basis for a loan is the expected cash flow of the project and the ability of the client to repay the loan over the agreed period. The credit risk can be taken entirely by the Bank or may be partly syndicated to the market. A loan may be secured by a borrower's assets and/or it may be converted into shares or be equity-linked. Full details are negotiated with the client on a case-by-case basis.

Loan features

• Minimum €5 - 15 million, although this can be smaller in some cases.
• Fixed or floating rate.
• Senior, subordinated, mezzanine or convertible debt.
• Denominated in major foreign or local currencies.
• Short to long-term maturities, from 5 to 15 years.
• Project-specific grace periods may be incorporated.

Interest rates

EBRD loans are based on current market rates and are priced competitively. Financial terms can be discussed in detail with banking staff once a project has been presented to the Bank. The EBRD does not subsidise projects, nor does it offer soft loans.

The Bank offers both fixed and floating interest rates:

• Fixed rate basis, linked to a floating rate such as LIBOR.
• Floating rate basis with a cap or a collar.

As the type rate directly affects profitability, a project's financial structure should preferably include both floating and fixed rate loans. The mix is evaluated with respect to client and project sensitivities to interest rate movements.

Fees and charges

A margin is added on to the base rate. The margin is a combination of country risk and project-specific risk. This information is confidential to the client and the Bank.

In addition to the margin, the Bank may charge some of the following fees and commissions:

• Front-end commission, paid up-front.
• Commitment fee, payable on the committed but undisbursed loan amount.
• Loan conversion fee, paid at the time of interest rate or currency conversion on the amount which is to be converted.
• Prepayment, cancellation and late payment fees are also charged if necessary.

In line with commercial practice, sponsors will be obliged to reimburse the Bank for out-of-pocket expenses, such as fees for technical consultants, outside legal counsel and travel expenses.

Other lending terms

Full lending terms are negotiated with the client for each project.

Recourse
Recourse to a sponsor is not required. However, the EBRD may seek specific performance and completion guarantees plus other forms of support from sponsors of the kind that are normal practice in limited-recourse financing.

Insurance
The Bank requires project companies to obtain insurance against normally insurable risks. Examples include theft of assets, outbreak of fire, specific construction risks. The EBRD does not require insurance against political risk or non-convertibility of the local currency.

Security
The EBRD usually requires the companies it finances to secure the loan with project assets. These can include:

• Mortgage on fixed assets, such as land, plant and other buildings.
• Mortgage on movable assets, such as equipment, other business assets.
• Assignment of the company's hard currency and domestic currency earnings.
• Pledge of the sponsor's shares in the company.
• Assignment of the company's insurance policy and other contractual benefits.

Covenants
Typical project finance covenants are required as part of the loan package. Such covenants, limiting indebtedness and specifying certain financial ratios and various other issues, will be negotiated.

Loan repayment

Repayment is normally in equal, semi-annual installments. Longer maturities may be considered on an exceptional basis, for example, up to 15 years for large infrastructure operations.

Hedging possibilities

The Bank can help manage financial risks associated with a project's assets and liabilities. This covers foreign exchange risk, interest rate risk and commodity price risk. Risk hedging instruments include currency swaps, interest rate swaps, caps, collars and options and commodity swaps.

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