Public Commentary: The parameters and ranges below reflect FG Capital Advisors’ experience in energy and infrastructure project finance. They are indicative only and do not constitute investment advice or a solicitation.
Project-Finance Term-Sheet Essentials: Debt Sizing, Covenants, and Security Packages
The term sheet is the roadmap lenders and sponsors use to transform a feasibility model into bankable debt. Understanding each clause—particularly debt-sizing formulas, covenant triggers, and collateral waterfalls—helps sponsors negotiate from a position of strength and avoid surprises in final documentation.
1. Debt-Sizing Mechanics
| Metric | Typical Threshold | Notes |
|---|---|---|
| Base-Case DSCR | ≥ 1.30× for contracted assets ≥ 1.45× for merchant exposure |
Calculated on sculpted amortisation profile; step-up reserve curves may apply. |
| Loan Life Coverage Ratio (LLCR) | ≥ 1.40× | Net present value of cash flow / debt outstanding. |
| Project Life Coverage Ratio (PLCR) | ≥ 1.60× | Provides buffer for end-of-life output degradation. |
| Debt-to-CapEx | 60 – 80 % for renewables 50 – 65 % for thermal or complex infra |
Higher leverage achievable with ECA wrap or long-term offtake. |
2. Covenant Architecture
- Financial Covenants: Minimum DSCR (locked-box distribution test), LLCR retest on semi-annual basis, and debt-service reserve account (DSRA) coverage (6–12 months).
- Construction Covenants: Cost-overrun support agreement, EPC performance guarantees, and milestone long-stop dates.
- Operational Covenants: O&M contract caps, minimum insurance coverage, and major maintenance reserve funding.
- Distribution Lock-Up: Dividends limited until 1.10× – 1.15× DSCR achieved in trailing period and no default outstanding.
3. Comprehensive Security Package
| Asset | Security Instrument |
|---|---|
| Project SPV Shares | English-law share charge / local pledge |
| Tangible Assets | Fixed and floating charge over land, plant, and equipment |
| Material Project Contracts | Assignment of EPC, O&M, PPA, and feedstock agreements |
| Bank Accounts | Account-control agreements for revenue, O&M, DSRA, and major-maintenance reserves |
| Insurance Proceeds | Loss-payee endorsements in favour of the security trustee |
4. Pricing Benchmark (Indicative)
| Asset Class | Spread over SOFR | Upfront Fees |
|---|---|---|
| Fully Contracted Renewables | SOFR + 175 – 225 bps | Upfront 1.0 – 1.5 % |
| Merchant Gas-Fired Power | SOFR + 250 – 325 bps | Upfront 1.25 – 2.0 % |
| PPP-Backed Social Infrastructure | SOFR + 150 – 200 bps | Upfront 0.75 – 1.25 % |
5. From Term Sheet to Financial Close
Month 1
— Term sheet execution
Months 1–2
— Mandated-lead arranger (MLA) due diligence, model audit, and insurer quotations
Months 3–4
— Common-terms agreement, intercreditor deed, and security-trust deed drafted
Month 5
— Syndication launch; commitments allocated
Month 6
— Conditions precedent satisfied; funds disbursed, notice to proceed issued
6. Sponsor Negotiation Tips
- Request ratio baskets allowing distribution if forward-looking DSCR tests are met.
- Cap cash-sweep percentages to preserve equity-holder IRR when performance exceeds base case.
- Seek step-down in DSRA size post-completion backed by performance guarantees.
- Align covenant cure mechanics with insurer proceeds and contingency drawdowns.
Engagement
Sponsors and developers preparing term-sheet negotiations are invited to consult FG Capital Advisors. Our team benchmarks lender requirements, optimises debt capacity, and manages financial-close workstreams to keep projects on schedule.
This document is for informational purposes only. It is not an offer to sell or a solicitation to purchase any security or service. Independent professional advice is recommended before acting on any information herein.
