What Are Direct Agreements

By Katie Liszka If direct agreements are used in project financing operations to protect lenders, the project should be in trouble. These are contractual mechanisms that allow lenders to follow in the footsteps of the project company (the borrower) and take over the project and/or find a replacement unit to continue the project. The parties to the direct agreement include the project company itself and the consideration for the project document for which the direct agreement is a security. ]]] > The direct agreement of the lenders: it is a three-way agreement between the Authority, Projectco and the lenders, under which the Authority agrees to grant lenders a deadline for the early termination of the project agreement. This agreement will also provide lenders with the opportunity to intervene directly or through a candidate or representative to resolve the termination event or to find another party that is acceptable to the Authority to assume Projectco`s rights and obligations under the project agreement. Direct agreement often involves changes to the underlying project documents. This is particularly the case for concession contracts in which the project company obtains the concession before the lenders make a strong commitment. Funding 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. One question that can be the subject of intense negotiations is what lenders are responsible for in the intervention. They take responsibility for unpaid and unfuleured commitments they are informed of. What is often disputed is the extent to which they assume responsibility for unknown and undeclared debts.

Lenders will only want to be liable for debts on which they will be alerted. The third party who accepts the intervention will of course want the lenders to be responsible for everything. If necessary, a direct agreement may include clauses in which the consideration of the project document accepts the collection or transfer by the security of the rights of the project company, in accordance with the project document. As a general rule, there is no debate as to whether, in principle, direct agreement should be reached. However, it is still common for certain provisions to be negotiated intensively and it often seems that disproportionate amounts of time are devoted to concentration on such a short agreement. To my knowledge, no one has ever intervened as part of a direct agreement and there would be practical difficulties, such as the reallocation of all project contracts. However, direct agreements are a common practice and a standard part of a lender`s security package. In addition to this guarantee, project lenders generally expect direct contractual relationships with counterparties with key project documents.

This goal is achieved through direct agreements. Agreements on government guarantees have emerged as an extension of the approach that underlies the direct agreement of lenders. Guarantee agreements are concluded between the Authority and the contractors who enter into a contract with Projectco. The objective is that if projectco does not meet its contractual obligations during the construction phase, the support of Projectco`s corresponding mission can guarantee the completion of the project. In addition, the Authority may take over Projectco`s operating contract at the end of the project. Direct agreements generally contain provisions that cover the following issues: direct agreements are also commonly referred to as “tripartite agreements”, reflecting the fact that they are an agreement between three parties, i.e.: project sponsor: the person who plays an active role in the management of the project.

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