THE TERM SHEET

Most project finance credit transactions begin with the preparation of a term sheet. The term sheet sets forth, in outline form, the main deal to be negotiated between the lender and the borrower. A difference exists between a term sheet (sometimes called a letter of intent or interest letter) and a commitment letter. One area of project finance that is consistently misunderstood, by developers, credit officers, contractors, utilities, and other participants in a project financing, is the area of lender commitments, including the differences between a financing letter of intent and a formal commitment letter. This misunderstanding often leads to confusion over what a lender and project sponsor have agreed to, the terms of a financing, how much time the developer has to satisfy the conditions to closing, the relationship between the lender and the project sponsor on future deals, and similar concerns. This confusion is unfortunate because it surrounds the very beginning of a relationship between the lender and the project sponsor. The following discussion summarizes the loan process in a project financing, from loan application, through the letter of intent to the commitment letter.

Approaching the Project Finance Lender for Business Advice

Sometimes, the project sponsor approaches lenders about the appropriateness of an investment in a potential project or a project in operation. Questions include such concerns as whether a contract is financeable, whether a particular project is economic, and whether a contractor has a good reputation for performing contracts.