Indicative Terms and Pricing
Though terms and conditions vary by transaction, the basic parameters are as follows:
The loan term is usually a minimum of 5 years and a maximum of 15 years, depending upon the type of project and its debt servicing capability. It is common to allow a 1-to-2 year “grace” period on principal repayment at the beginning of the term (during which the project pays interest only) to allow for project completion. Payments are usually made quarterly or semi-annually.
50% debt to 50% equity is standard for project capitalization for a new project. Higher leverage is possible if circumstances warrant (e.g. an expansion).
The interest rates on the three products are determined as follows:
- Up front Retainer Fee to cover due diligence costs such as travel to the project site.
- Facility/Origination Fee – A one-time, flat fee usually paid at the time of loan agreement signing or first disbursement. Amount is negotiated.
- Commitment Fee – An annual percentage charged on any undisbursed amount. The percentage is negotiated.
- Maintenance Fee – An annual fee charged to cover the cost of monitoring the loan. Amount varies depending upon the size and complexity of the transaction.
Types of Security/Collateral
- Completion guaranty – for many projects (especially those involving major construction), a completion guaranty provided by the project owners/sponsors is standard. Under such a guaranty, the owners/sponsors would guaranty the payment of all of the project company’s obligations (including any payment on the OPIC loan) until the project has achieved a state of physical completion, is able to demonstrate that it is operating successfully and is able to confirm that all licenses/permits, etc. are in place.
- Life-of-Loan guaranty – in some cases, OPIC may require a guaranty that lasts through the life of the loan rather than through completion only.
- Pledge of shares of the project company (and other entities as applicable) – standard for all projects.
- Debt service reserve account – standard for most projects.
- Liens/mortgages – depends on circumstances; OPIC usually requires a mortgage or a lien on or assignment of project assets.
- Pledge of insurance proceeds – standard for most projects.
Financial Ratios and Reporting
- Maintenance of 1) Maximum Debt/Worth Ratio, 2) Minimum Current Ratio, 3) Minimum Debt Service Coverage Ratio. Levels depend on project projections.
- Provision of quarterly unaudited and annual audited financial statements.
- Provision of an annual project plan/budget for the upcoming fiscal year.
Most of those covenants fall into three areas:
- Compliance with US Foreign Corrupt Practices laws and other applicable laws.
- Environmental, Health and Safety requirements (see OPIC Policies).
- Worker Rights requirements (see OPIC Policies).
Payments or Reimbursement of Expenses
OPIC may require the services of outside consultants or attorneys, the cost of which is paid by the project or sponsors. The project/sponsors would also reimburse OPIC for any expenses related to registration or notarization of documents, etc.
Conditions Precedent to Disbursement
Standard requirements include execution of all loan documents, completion of legal opinions, local registrations and other “consents” such as permits, evidence of expenses for which the disbursement will be used (i.e. invoices), submission/completion of various certificates evidencing information in the borrower’s representations, etc. Other requirements depend on the specific conditions surrounding each project. For a complex project in a jurisdiction where local law is unclear or quite underdeveloped, the list of conditions precedent can be quite lengthy and the process of completing the list can be very difficult and time-consuming.