The Book of Jargon® – Project Finance

An interactive glossary of project finance acronyms, slang, and terminology.

The Book of Jargon® – Project Finance is one in a series of practice area and industry-specific glossaries published by Latham & Watkins.

The definitions provide an introduction to each term and may raise complex legal issues on which specific legal advice is required. The terms are also subject to change as applicable laws and customary practice evolve. As a general matter, this glossary was drafted from a US practice perspective.

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The information contained herein is not legal advice and should not be construed as such. 

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  • Accelerate / Acceleration:
    the end of the line under an Indenture or Credit Agreement. Following an Event of Default, the bondholders (under an Indenture) or Lenders (under a Credit Agreement) have the right to Accelerate the due date of their debts. In other words, they have the right to declare their Notes or loans immediately due and payable. Bankruptcy and insolvency Events of Default usually automatically lead to Acceleration under an Indenture or a Credit Agreement; otherwise Acceleration would be prohibited under the Automatic Stay.
    Access:
    the right to enter and exit a property from a public right of way (such as a road). Access rights often require Zoning approvals, curb cuts, Easements, or use agreements with adjoining landowners. A Title Insurance Policy may insure Access with regard to an insured property if an Access Endorsement is included. If a landowner does not have Access, she is “landlocked,” and her property may be worth very little.
    Accordion:
    a feature in a Credit Agreement that allows the Borrower to increase the maximum commitment amount under a Revolver or to incur additional Term Loan debt under circumstances specified in the Credit Agreement. The Accordion, however, is not pre-committed financing, and may involve bringing another Lender into the facility. An Accordion is essentially an advance agreement to share Collateral with additional Lenders if the Borrower can find them on the agreed terms (aka an “incremental facility”). Accordions do not typically occur in a Project Financing absent a change in the economics that is anticipated to occur following closing, such as the change that would result from expanding the project’s Capacity.
    Account Control Agreement:
    an agreement that provides Lenders in a secured financing with Control over a Borrower’s deposit accounts and securities accounts in order to Perfect their Security Interest in the accounts. The agreement is among the Borrower, the Collateral Agent, and the bank or securities intermediary where the Borrower holds its deposit account or securities account. Absent an Event of Default, the Borrower usually retains full access to the account. Upon an Event of Default, however, the Collateral Agent may require the bank or securities intermediary to transfer control over the account to the Collateral Agent by no longer accepting instructions from the Borrower. A Security Interest in a securities account is typically Perfected either by means of entering into an Account Control Agreement or by filing a Financing Statement, although a Security Interest Perfected by means of Control has priority over a Security Interest Perfected by filing a Financing Statement. A Security Interest in a deposit account, by contrast, can be Perfected only by means of entering into an Account Control Agreement or another method of Control, not by filing a Financing Statement.
    Account Party:
    the party that requests issuance of a Letter of Credit and is responsible for repaying the Issuing Bank if the Letter of Credit is Drawn by the Beneficiary.
    Additional Insured / Additional Named Insured:
    the Lenders, the Collateral Agent, and/or the Administrative Agent that are added to a Borrower’s liability insurance policies due to the Lenders’ concern that a plaintiff may sue them if the Borrower harms the plaintiff, because the banks have deep pockets. Additional Insureds have the right to be defended by the insurer, and to have any valid and covered claims paid, up to the policy limit. Additional Insured status is provided through an Endorsement issued by the Insurance Broker, which makes sure the insurer’s records show all the Additional Insureds. The cost is nominal.
    Administrative Agent / Admin Agent:
    the bank that serves as the principal Agent administering the credit facilities documented in the Credit Agreement. The Administrative Agent is responsible for processing interest payments to Lenders, posting notices delivered by the Borrower, and acting as the primary representative of the Lenders in dealings with the Borrower. The Trustee performs an analogous role in Bond land, except that the Administrative Agent is often willing to exercise more discretion over decisions relating to minor Covenants than is a Trustee.
    Administrative Agent Fee:
    the annual fee paid to the Administrative Agent for administering a Credit Agreement. This fee typically is relatively low, and as a result, Administrative Agents focus on minimizing their discretion and risk under the Credit Agreement and related documents.
    Aeroderivative Gas Turbine:

    a combustion gas turbine that is based on aircraft engine designs. Aeroderivative Gas Turbines are very responsive — which is why they are used in Peakers — and are compatible with Automatic Generation Control.

    In contrast, see Frame Unit.

    Affiliate:
    generally, a person or entity controlling, controlled by, or under common control with another person or entity.
    Affirmative Covenant:
    a contractual provision in an Indenture, a Credit Agreement, or another contract that sets forth certain actions the Issuer, Borrower, or other applicable party must take to be in compliance. Think of these as “Thou Shalt” Covenants. Many Affirmative Covenants are boilerplate in nature, covering such things as promises by the Borrower to pay interest and fees, maintain insurance, pay taxes, and provide quarterly operating reports. In a secured deal, the Affirmative Covenants regarding delivery and maintenance of Collateral are more highly negotiated.
    In contrast, see Negative Covenant.
    African Development Bank / AfDB:
    a multilateral development finance institution that promotes social and economic development in Africa through the investment of capital in projects.
    AGC:
    acronym for Automatic Generation Control.
    Agency Fee:

    the annual fee paid to the Administrative Agent, Collateral Agent, and Depositary Bank. These fees are typically relatively low fixed fees, and as a result, Agents focus on minimizing their discretion and risk under transaction documents.

    See also Administrative Agent Fee.

    Agent:
    a generic term used to describe an Administrative Agent, a Collateral Agent, or a Depositary Bank.
    Allowance for Funds Used During Construction / AFUDC:
    the FERC and state regulatory accounting procedure that allows interest paid on borrowed funds and a rate of return on equity funds to be added to the construction cost of a project for purposes of rate recovery (including those amounts in rates charged to Ratepayers).
    ALTA:
    acronym for the American Land Title Association.
    ALTA Survey:
    Survey performed by a licensed land surveyor that meets the requirements specified by ALTA for the Title Insurance to cover Title defects that would be revealed by a Survey. The Title Company will examine the ALTA Survey to avoid issuing Title coverage that might lead to a claim — such as an Encroachment. The Title Insurance may include an Endorsement insuring that the property described therein is the same as the one shown on the ALTA Survey (i.e., a “same as survey” Endorsement).
    American Land Title Association / ALTA:
    a national trade association of the Title industry that produces Survey standards, forms of Title Insurance policies and Endorsements, and other real estate guidelines that have become an industry standard. The acronym ALTA is typically used as an adjective, as in ALTA Survey.
    American Recovery and Reinvestment Act of 2009 (ARRA) / Stimulus Bill:
    a US federal law passed in February 2009 that included billions of dollars’ worth of benefits to the Renewable Energy industry.
    American Wind Energy Association / AWEA:
    the primary advocacy organization for the wind industry in the United States.
    Ammonia Slip:
    ammonia used in an SCR unit that ends up as part of the exhaust gas, instead of reacting with the exhaust gas to reduce nitrogen oxides.
    Amortize / Amortization:
    the required periodic repayment of the principal of a Term Loan or Bond prior to its final Maturity. Construction Loans, corporate Bonds, and Revolving Loans generally do not Amortize, but Bonds issued to finance an individual project typically do Amortize.
    Ancillary Services:
    services that an electric-generating facility can provide to the Grid besides Capacity and energy, or that a customer consumes from the Grid besides energy, that are required for the electric distribution system to operate properly. For example, if a generator is on AGC and is an extremely responsive technology — such as an Aeroderivative Gas Turbine — the generator might be able to stabilize the voltage on the system by quickly changing output. As power markets have shifted away from single-source providers (utilities) and have become more sophisticated, it has become more common to charge for Ancillary Services so that price signals ensure a balanced supply and demand.
    Applicable Margin:
    Margin that might change depending on predetermined rules. The Applicable Margin could increase over time, or if the Borrower is downgraded or is on the weak side of performing its Financial Covenants, on the principle that higher risk should equal higher reward for the Lenders. The Applicable Margin is the Lenders’ profit, which they are paid in consideration of taking on the risk of the loan.
    Arbitrate / Arbitration:
    a means of dispute resolution often perceived as less cumbersome and more expeditious than litigation. In Arbitration, the rules of evidence are considerably more lax, and there is no risk of a “wild” jury verdict (since there is no jury per se, other than the arbitrators, who are sort of professional jurors). And because the Arbitration process is private, the parties do not have to wait on the public court system. The agreement between the parties should specify that the Arbitration is binding; otherwise, the losing party could simply relitigate in the public court system. Some perceive that arbitrators tend to “split the baby,” leaving both sides somewhat unhappy instead of one side very unhappy.
    ARRA:
    acronym for the American Recovery and Reinvestment Act of 2009.
    Arrangement Fee:
    the fee paid to the Lead Arranger for pulling a deal together and doing most of the work by negotiating the deal terms as reflected in the Term Sheet and either Underwriting the deal or assembling a Club.
    Arranger / Lead Arranger:
    the bank that arranges a credit facility by negotiating original terms with the Borrower and Syndicating the facility to a larger group of Lenders. The Arranger generally has no ongoing obligations under a Credit Agreement after the closing date in its capacity as Arranger, but often also serves as Administrative Agent and/or Collateral Agent.
    Array:
    the arrangement of Wind Turbines in a Windfarm. All Windfarm sites have a direction from which the wind blows a large part of the time. The Array will be situated such that each String is perpendicular to this prevailing wind direction and far enough away from upwind Strings to minimize Wake turbulence, which pummels WTGs, increasing operating costs.
    Article 9:
    the part of the UCC that governs the validity and Perfection of Security Interests in most personal property secured deals. In California, Article 9 is called “Division 9” — they just have to be special.
    As-Built Survey:
    a type of ALTA Survey that is performed after a project is finished, showing all the Improvements constructed on the surveyed property. Projects almost never get built exactly as shown in the original drawings, so the As-Built Survey becomes a historical document showing where everything is (including underground piping) while the construction is still recent. Lenders may require an As-Built Survey as a condition to Term Conversion.
    Asian Development Bank / ADB:
    a multilateral development finance institution that promotes social and economic development in Asia through the investment of capital in projects.
    Associated Gas:
    natural gas that is found in association with Crude Oil, either dissolved in the oil or as a cap of free gas above the oil. As with Condensate, a market exists for Associated Gas.
    Assume / Assumption:
    taking on and becoming bound by obligations. Under US Bankruptcy Code Section 365(a), with certain exceptions, a debtor, with approval of the US bankruptcy court, may Assume or Reject an Executory Contract or unexpired Lease. If the debtor Assumes the Executory Contract or Lease, it takes on and becomes bound by all the obligations of the Executory Contract or Lease. If the debtor previously defaulted under an Executory Contract or Lease that it wishes to Assume, then, as a condition to approval, the debtor generally must (i) Cure the Default, and (ii) provide adequate assurance of future performance of the Executory Contract or Lease.
    Attainment:
    See National Ambient Air Quality Standards.
    Attornment:
    See Subordination and Non-Disturbance Agreement.
    Automatic Generation Control / AGC:
    technology that allows an Offtaker of a power plant to control basic operations of the facility, such as starting, stopping, and output level, remotely. The term also refers to the related contract right, as in “We gave the utility AGC on that Peaker.”
    Automatic Stay:
    the rule deriving from US Bankruptcy Code Section 362 that prohibits creditors from taking most actions against a bankrupt debtor or its property without permission from the US bankruptcy court. For example, Lenders may not Accelerate a loan (though the loan may Accelerate automatically if the Credit Agreement so provides), demand payment, Foreclose on Collateral, or exercise Setoff rights. The Automatic Stay does not prevent Draws on a Letter of Credit for which the bankrupt debtor is the Account Party, thanks to the Independence Principle. Generally speaking, Derivatives counterparties enjoy statutory safe harbors that allow them to liquidate Derivatives contracts without permission from the US bankruptcy court.
    Auxiliary Boiler / Aux Boiler:
    boilers at a Cogeneration plant that produce steam independent of the gas turbine/HRSG. The capabilities and costs of running Aux Boilers is often a material issue in steam purchase agreements, as the Thermal Host does not want to rely exclusively on the availability of the power plant to support its operations.
    Availability (Factor):
    the percentage of time a project (often a power generation facility) is ready to run at full output, even if it is not actually running. Offtakers use the Availability Factor to determine whether they are getting their money’s worth when paying for Capacity. For example, a utility might pay a project owner a Capacity component under its PPA for merely having the facility ready to fire up and run at full Capacity at any time on short notice (e.g., on a hot summer afternoon when everybody gets home at the same time and turns on their TV, computer, and air conditioner). Even if the utility rarely Dispatches that facility, the utility needs to know that it can do so if need be.
    Availability Guarantee:
    a guarantee by a WTG manufacturer (or other main facility component manufacturer) that its machine will have a minimum Availability over a stated term (say, five years). Availability Guarantees are most helpful when a particular technology has had reliability issues. They are also least helpful when a particular technology has had reliability issues, because the manufacturer may not be around to honor the Availability Guarantee if paying for other Availability Guarantees has put it out of business.
    Avian Mortality:
    the death of birds, in particular those that fly into WTGs. In some areas, Avian Mortality is a serious impediment to Windfarm development. Often, the concern centers on large birds of prey (aka raptors). Because raptors evolved with the assumption that they could fly unimpeded while focusing on the ground for prey, they often run into WTGs without knowing what hit them. To combat this issue, developers started using tubular towers (instead of Lattice Towers), which discourage perching. Many projects have been required to shut down when radar and annual migratory pattern studies reveal that birds will be passing by. Although bats are not as regal as raptors, they are also considered worth protecting from turbine strikes.
    Avoidance Action:
    an action commenced in US bankruptcy court, via an adversary proceeding, to avoid, set aside, and recover, for the benefit of the bankruptcy estate, certain types of transfers that the debtor made, either pre-petition or post-petition. Avoidance Actions — for both Fraudulent Transfers, Preferential Transfers, and unauthorized post-petition transfers — and the limitations thereon are addressed in US Bankruptcy Code Sections 544-545 and 547-550.
    Avoided Cost:
    the rate at which QFs that are utilizing a PURPA Put may charge utilities for energy. Under PURPA, utilities buying electric energy pursuant to a PURPA Put are required to pay power sellers at a rate equivalent to what the utilities would have paid to acquire the same amount of electric energy through traditional means, e.g. building a new power plant or entering into a long-term contract (the cost of which was theoretically avoided). Avoided Cost is determined by the applicable state utilities commissions, and may or may not include a Capacity Charge component.
    AWEA:
    acronym for American Wind Energy Association.
 
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