As the world of North American LNG financings continue to evolve, OGInsights explores the use of completion guarantees in construction financings.
In Part II of this two part series, we look at the conditions precedent to project completion which typically need to be satisfied for release of the completion guarantee by lenders.
Construction criteria requires "substantial completion" under the EPC Contract. In addition, operational tests must be satisfactory and includes production of on-specification LNG for a continuous 90-day period.
At completion, maximum stated debt to equity ratio is not to be exceeded - should the ratio be too high, project sponsors are required inject capital to bring the ratio within covenanted levels. Operating account and Debt Service Reserve Accounts are also to be funded to required levels.
From a legal perspective, project agreements and finance documents must be in full force and all governmental authorisations need to be in place, together with certification of environmental and social compliance in line with covenant requirements.
Financing structures continue to evolve to support LNG projects with lenders and sponsors driving the innovation to (i) enable projects and (ii) improve project economics whilst managing the risk that lenders are exposed to.
In Part I, OGInsights covered the use of and reasons for project completion guarantees from a sponsor perspective.
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