Financing Law Aspects

Nadia Soraya | 10 May 2022

Agenda

1 FINANCING 4 PROJECT FINANCING

2 DOCUMENTATION: TERM 5 PLAYERS & STRUCTURE
SHEETS & FACILITY
AGREEMENTS 6 CASE EXAMPLE
3 SECURITY RIGHTS / 7 SECURITY STRUCTURE
COLLATERAL
1

Financing
Financing vs Equity

Financing / Loans:
• bank debt
• senior debt Equity:
• mezzanine debt • shares
• high yield bonds
• shareholders loan
What is financing for?

Refinancing Working capital Acquisition

Opex Advisors Fees

Bank debt

Senior debt
Security (Hak Jaminan) & Guarantees
(Penjaminan)

• Share
security
Lenders Maximise security • asset
security
• guarantees

• minimum
restrictions
• minimum costs
Borrowers Limit security • minimum post-
closing
obligations
(registration,
regular
valuation)
2

Documentation:
Term Sheets &
Facility Agreements
Documentation

Asia Pacific Loan

Term Sheets Facility Market
Agreements Association
(APLMA)

Security Corporate 6
documents Approvals
Facility Agreements
Parties in a Facility Agreement

* Lenders / * Borrower /
Creditors Debtor
(banks, financial (individual,
institutions) corporates)

*Agents (facility *Security

agent, security Grantors;
agent) Guarantors
Facility Agreements
Purposes and types of facilities

Purposes of Facilities Types of Facilities

Consideration for Term Facility

the Financing (Pinjaman Berjangka)

Costs/expenses
relating to Financing Term Facility

Refinancing of existing
indebtedness of the Target Term Facility

Capital expenditure and

general corporate Capex/Revolving/
purposes Ancillary Facilities

Permitted Acquisitions Acquisition Facility

Facility Agreements
Restrictions & Exclusions
Restrictions (Pembatasan) untuk Debitur dan Penjamin:
Disposal or acquisition of assets
Providing guarantees or granting security
Intra-company group cash transfer or dividend distribution
Other borrowings

but – there are exclusions:

Permitted Acquisitions or Permitted Disposal

Permitted Security/Permitted Guarantees

Permitted Financial Indebtedness

Facility Agreements
Prepayments & Repayments

◼ Repayments: over principal amount in accordance with the

repayment schedule
◼ Cash sweep provisions / Excess Cashflow
◼ Mandatory Prepayments
Disposal Proceeds
Insurance Proceeds
Acquisition Proceeds

◼ Voluntary Prepayments
3

Security Rights &

Collaterals
General
Security Rights

Pledge – Fiducia
over shares; security –
bank over movable
accounts assets

Hak
Tanggungan Hypothec
– over – over
immovable vessels
assets
Security Right - Pledge

Article 1150 – 1160 ICC

Pledge: rights conferred to creditors over

movable assets provided by the debtor or
other parties on behalf of the debtor

Creditors get preferential right to receive the full

repayment by selling the pledged assets, in the
event the debtor is in default
Establishment of Security Right

Tangible and movable assets, and bearer instruments

(piutang atas bawa)
Security Right – Fiducia Security
Law No. 42 of 1999 regarding Fiducia Security

over movable
assets; tangible /
intangible; over
immovable assets *the assets remains
which are not in the possession
capable of of the fiducia
encumbered by security grantor
way of Hak
Tanggungan or
Hypothec
Security Right – Fiducia Security

Fiducia Security
Agreement (Notarial
deed; Indonesian
language) Registered with
Fiducia Registration
Office (in the domicile
of the grantor); fiducia
security certificate
Security Right – Hak Tanggungan
Law No. 4 of 1996 regarding Hak Tanggungan

over land, with or without the assets attached to the land

Deed of Hak Tanggungan – signed before Land Deed

Official (Pejabat Pembuat Akta Tanah)

Hak Tanggungan is registered with Land Office / National

Land Agency (BPN); hak tanggungan certificate
4

Project Financing
What is Project Financing?

Lenders Collateral
Debt
repayment
Limited
Specific recourse
economic
unit

Government Sponsors
Cash Assets

Non
recourse

Financing of a particular economic unit in which a lender is satisfied to look

initially to the cash flows and earnings of that economic unit as the source of
funds from which a loan will be repaid and the assets of the economic unit as
collateral for the loan…. Nevitt & Fabozzi
© 2018 HHP Law Firm
What is Project Financing?
How is it different to other types of financing?

Feature Project Finance Corporate Finance

Borrower SPV Parent and OpCos

Recourse to Parent/ No/Limited Yes

Subsidiaries

Economic basis for Projected revenue Credit of

loans Group/Parent

Key Collateral Project Contracts, Possibly no security

insurance and revenue – balance sheet
Typical Types of Project Finance

POWER

Infrastructure

TRANSPORT
What is Project Financing?

very rare
Non-recourse Creditors have no recourse to the
sponsors for anything

more common
Sponsors can be required to give
Limited recourse cost-overrun support, completion
guarantees
“Cash is King”
Cash flow – super important for
the project and the economics
of the projects
Limited recourse means only source of revenue and
repayment is the Project’s cash flow
– Borrower often does not own real estate/assets
– Lenders will need a lot of information about cash flows

Where does the cash come from – payments under

contracts
Lenders will assess forecast cash flow to determine key
commercial aspects of lending
– amount of debt
– margin
– repayment profile
– debt: equity and other ratios 28
What is Project Financing?
5
Players and Structure
 Contracts & Parties – the Contractual Matrix

Lenders Sponsor Sponsor

Loan
Agreement Shareholders’
Agreement

Shareholder Shareholder
Host
Government
Direct
Agmnt Concession
Construction Agreement
Contract
Project Purchase
Contract
Contractor
Company Power
O&M Purchaser/
Agreement Off-taker
Supply
Contract

Direct Agreement
Operator Direct
Gas Supplier Agreement
6
Case Example
Case example: IPP Power Project

tariffs
Sponsors Shareholders PLN Consumers
Agt

Share
PPA & GOI Support
Mortgage Direct Ministry of
Sponsors Agt Letter/Guarantee??
Agt Agreement
Finance
Loan
Project Agt Project Company
Lenders Security Insurance Insurers
Documents Policy
Direct O&M
Agreement Agreement Operator
Construction
Contract
EPC
Direct Contractor
Agreement
Direct Coal Supplier Coal Supply
Agreement Agreement
Case example: IPP Power Project
 7
Security Structure
Project Finance Security Structure

Sponsors’ Sponsor B Sponsor B

Support
Agreement
and
Construction JV Company
Delay Charge over
Indemnity Dividend A/C Government
Agreement
Loan
Lenders
Agreement Project Project
Project
Accounts
Company Supervision Accounts
(Borrower) Agreement Supervision
(1) Sponsors’ Support / Undertakings / Guarantee
Bank
(2) Assignment:
(a) Concession Contract
(b) Project Contracts (including Construction Contract and O&M Contract)
(c) Project related guarantees and performance bonds
(d) Project Accounts Supervision Agreement
(3) Charge over Project Accounts
(4) Insurance Assignment
[(5) Mortgage over land/equipment and other assets]
(6) Step-in Agreement
Security
Security
Security
Questions