Corporate, Project & Hybrid Loans

Corporate Finance Loan

In corporate-finance transactions, OPIC makes a loan to the U.S. corporate sponsor of an overseas project. OPIC would look to the ability of the U.S. company to repay the loan and to offer collateral, rather than to the project company. OPIC can structure a corporate finance transaction more easily and generally at less cost than if the borrower and collateral are in a foreign country. The purpose of the financing is still to support the overseas project.

Project Finance Loan

In project-finance transactions, OPIC looks to the overseas project for repayment of the loan. In project finance underwriting, OPIC carefully analyzes the economic, technical, marketing, and financial soundness of the project to determine its creditworthiness. There must be adequate cash flow to pay all operational costs and to service all debt. It is expected that collateral, in the host country and/or in the U.S., will be provided to secure the loan. The project sponsors are expected to support the overseas operation until certain specific tests for physical completion, operational implementation, and financial soundness are met. To the extent that project financing is appropriate, sponsors may not need to pledge their own general credit beyond required completion undertakings.

Hybrid Loan Structure

Hybrid structures, combining elements of corporate finance and project finance, are frequently used. The term “hybrid” emanates from the cash flow and collateral from the domestic parent company and the project company to craft an acceptable loan structure. Hybrid finance structures can be more costly than corporate finance structures. However, in many cases, the domestic sponsor may already have pledged its assets to its existing local bank. OPIC may see value in the cash flow and collateral overseas that is not seen by a local U.S. bank and thereby obtain sufficient comfort to consider the transaction.