The Book of Jargon® – Project Finance

An online glossary of project development, acquisition and finance slang and terminology.

The Book of Jargon® – Project Finance is one of a series of practice area-specific glossaries published or to be published by Latham & Watkins. The definitions below are designed to provide an introduction to the applicable terms. The included terms raise complex legal issues on which specific legal advice will be required.

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

The terms are also subject to change as applicable laws and customary practice evolve. The Book of Jargon® – Project Finance is drafted from a US-practice perspective.

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  • Acceleration:
    The end of the line under an Indenture or Credit Agreement. The definitions of Default and Event of Default describe how we get there. 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 because otherwise Acceleration would be prohibited under the Automatic Stay.
    Access:
    The right to enter and exit a property from a public right of way (a road). Access rights will 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 you do not have Access, you are “landlocked” and your property is 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. It is really just an advance agreement to share Collateral with additional Lenders in the future if the Borrower can find them on the agreed terms. Also known as an Incremental Facility. You would not see an Accordion in a Project Financing absent a change in the economics, such as would result from expansion of the Project’s Capacity.
    Account Control Agreement:
    This is how Lenders in a secured financing Perfect their Security Interest in a Borrower’s deposit accounts and securities accounts. It is an agreement among the Borrower, the Collateral Agent and the bank or securities intermediary where the Borrower holds its deposit 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 notify the deposit 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 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 an Account Control Agreement or another method of Control, not by filing a Financing Statement.
    Account Party:
    The party that asks that a Letter of Credit be issued, and who is responsible for repaying the Issuing Bank when the Letter of Credit is Drawn by the Beneficiary.
    Additional Insured / Additional Named Insured:
    Lenders worry that a plaintiff may sue them if their Borrower harms the plaintiff, because the banks have deep pockets. So they have the Borrower add the Lenders, or at least the Collateral Agent and Administrative Agent, on the Borrower’s liability policies as Additional Insureds. The 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. This is done through an Endorsement issued by the Insurance Broker, who 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 accorded more discretion over minor Covenants than is a Trustee.
    Administrative Agent Fee:
    The annual fee paid to the Administrative Agent for administering a Credit Agreement.
    Aero-derivative:
    Combustion gas turbines that are based upon aircraft engine designs. These are very responsive and so are used in Peaker plants and are very compatible with Automatic Generation Control. Compare Frame Unit.
    Affiliate:
    Defined slightly differently in different types of agreements, but generally refers to a subsidiary, corporation, partnership or other person controlling, controlled by or under common control with another entity.
    Affirmative Covenant:
    Contractual provisions in an Indenture or a Credit Agreement that itemize certain actions the Issuer or Borrower must take to be in compliance. Think of these as the “Thou Shalt” Covenants. Many Affirmative Covenants are boilerplate in nature, covering such things as a promise 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 will be more highly negotiated. Compare Negative Covenant.
    AFUDC:
    Allowance for Funds Used During Construction. 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 (i.e., including those amounts in rates charged to ratepayers).
    AGC:
    Automatic Generation Control.
    ALTA:
    The American Land Title Association, a national trade association of the title industry, which produces survey standards, forms of title insurance policies and endorsements, and other real estate guidelines which have become industry standard. Typically used as an adjective and never spelled-out, as in ALTA Survey.
    ALTA Survey:
    A 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 Insurer will examine the ALTA Survey to avoid issuing title coverage that might lead to a claim — such as an Encroachment.
    Ammonia Slip:
    Ammonia used in an SCR unit that ends up as part of the exhaust gases, as opposed to reacting with the exhaust gas to reduce nitrogen oxides.
    Amortization:
    The required periodic repayment in installments of the principal of a term loan prior to its final maturity. Corporate bonds and Revolvers generally do not amortize, but bonds issued to finance an individual project do typically 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 particular generator is on AGC and is an extremely responsive technology (e.g., an Aero-derivative turbine), it 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 was thought important to pay for and charge for Ancillary Services so that the price signals would ensure a balanced supply and demand.
    Applicable Margin:
    Same as Margin, except that it might change depending on predetermined rules. The Applicable Margin might increase when 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 Lender’s profit, which it is paid in consideration of taking on the risk of the loan.
    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, there is no risk of a “wild jury verdict” (as there is no jury per se, other than the arbitrators, who are sort of professional jurors) and since the process is private, the parties do not have to wait on the public court system. The agreement should specify that the arbitration is binding; otherwise, the losing party could simply re-litigate 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:
    American Recovery and Reinvestment Act of 2009, a federal law passed in February 2009 that included billions of dollars of benefits to the renewable energy industry.
    Arrangement Fee:
    The fee paid to the Lead Arranger for pulling a deal together and doing most of the work by negotiating the basic deal terms as reflected in the Term Sheet and either offering an Underwriting or putting together a Club Deal.
    Arranger or 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 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 (see also Wind Rose). The Array will be situated such that each String is perpendicular to this prevailing wind direction and far enough away from the upwind Strings to minimize Wake turbulence, which pummels your 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 of the improvements. You need one of these because projects almost never get built exactly as shown in the original drawings — the As-Built Survey becomes a historical document showing where everything is (including underground piping) while the construction is still fresh in everybody’s mind.
    Associated Gas:
    A natural gas which 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.
    Attainment:
    See NAAQS.
    Auction Rate Securities:
    A long-term security, often a municipal bond, that has interest that re-sets on very short terms, usually seven, 28 or 35 days. At the end of that period, the interest rate is re-set through a Dutch Auction. The holder can, at the end of any interest period, put the bond back to the issuer (i.e., cause the issuer to buy the bond). The bond is then quickly Remarketed. Variable Rate Debt Obligations are similar but have a bank facility to ensure purchase of the Bonds if they are not successfully Remarketed.
    Automatic Generation Control / AGC:
    Technology which allows an Offtaker of a power plant to control remotely and electronically basic operations of the facility, such as starting, stopping and output level. 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 Bankruptcy Code Section 362 that prohibits creditors from taking any but very limited actions against a bankrupt debtor or its property without permission from the court. For example, the Lender 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 debt is the Account Party, thanks to the Independence Principle.
    Aux Boiler:
    Auxiliary boilers at a Cogeneration plant which 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 availability of the power plant to support its operations.
    Availability (Factor):
    The percentage of time a project (often a power generation facility) is in a state where it is ready to run at full-output, even if it is not actually running. Availability Factor is used by Offtakers to determine whether they are getting their money’s worth when they are 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 within 5-10 minutes (e.g., on a hot summer Phoenix 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, they need to know they can if they need to.
    Availability Guaranty:
    A guaranty 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). These are most helpful when a particular technology has had reliability issues. These are also least helpful when a particular technology has had reliability issues, because the manufacturer may not be around to honor the guaranty.
    Avian Mortality:
    Scientific term for bird deaths (they run into WTGs while flying). In some areas, Avian Mortality is a serious impediment to windfarm development. Often, the concern centers on large birds of prey (raptors). Because raptors evolved with the assumption they could fly around unimpeded while focusing on the ground looking for prey, they often run into WTGs without knowing what hit them. Among the early mitigants, developers started using tubular towers instead of lattice towers, which discourages perching on the lattice. Recently, many projects are required to shut down when radar arrays and annual migratory pattern studies reveal that birds will be passing by. Though not as regal as raptors, bats are also considered worth protecting from turbine strikes.
    Avoided Cost:
    The rate at which QFs that are utilizing a PURPA Put may charge utilities for energy. Under PURPA, utilities were required to pay power sellers what the utility theoretically would have paid to build a new power plant (the cost of which was theoretically avoided). Avoided Cost is determined by the respective state utilities commissions, and may or may not include a capacity charge component.
    AWEA:
    American Wind Energy Association. AWEA is the primary advocacy organization for the wind industry in the United States.
 
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