Singapore Offshore Finance Forum

Sponsor Support for Financing of Offshore Assets :

What does Limited Recourse Really Mean?
17 January 2013

Presentation by :
Andrew Nimmo, Partner

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The Limited Recourse Concept

Limited Recourse or Non-recourse lending?

Recourse to what/who?

Offshore asset projects: Lender only entitled to look to:

- the Borrower (project company)
- other Borrower assets and security
- the charterer (if permitted/possible pursuant to assignments)
- secured assets from other parties (but without further recourse to
those security providers beyond the secured assets) e.g. assigned
contracts, shares in the Borrower
- in some cases, specific and limited Sponsor undertakings /
guarantees (project dependent)
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Objectives of Parties

> Sponsors: to eliminate commitment/support and financial

risk; increase return on equity; keep off-balance sheet

> Financiers: to ensure project is 'bankable'/creditworthy;

that repayment of loan is secure; that commercial risks lay
elsewhere to extent possible

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Objectives of Parties

Key is finding a balance between these two positions

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Offshore Asset Financing

Recourse typically limited to some extent by structure itself

e.g. project-specific SPV

Starting point is no recourse to sponsors - protected by corporate

veil

But significant comfort provided by:

equity stake
reputation risk
commercial interests of Sponsors in project success
implied guarantees (e.g. cross-default clauses)

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Forms of Sponsor Support

Further support - examples:

> Sponsor undertakings (e.g. project cost overruns)

> Comfort letters
> Guarantees (financial; completion/performance)
> Security interests
> Sponsor representations & warranties

Within each category, terms and level of support can vary

enormously.

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Example: Completion Guarantee

A completion guarantee/undertaking from the

Sponsors for the FPSO, on a joint and several basis
and in form and substance reasonably satisfactory
to the Lenders

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Example: Completion Guarantee

> full financial guarantee of loan up to completion date

> guarantee for debt service up to completion date in case of delays
> undertaking to ensure completion occurs (as far as not outside sponsor
control)
> undertaking to ensure completion occurs (absolute, with a long stop date)
> comfort letter on achieving completion (binding/non-binding?)
> financial guarantee for amounts required to complete the project
> general comfort letter (supervision, management, enforcement etc.)
> undertaking to refinance (for bridging facility)

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Additional Factors (1)

> what is "completion" (definition and who determines)

> how long after completion does the completion guarantee last,
if at all?
> intended factual/legal consequences for breach/failure to
perform?
> indemnity or pure guarantee?
> project risks? (i.e. asset construction and installation complete
but field / infrastructure not performing)

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Additional Factors (2)

> several or joint & several?

> is the guarantor intended to be an "Obligor"?
> what is the trigger for guarantee enforcement? (timing?
shortfall only?)
> punch list items and materiality of outstanding items?
> requirement for third party certification?
> cap on liability? Pre-committed pool of funds?

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Financial Guarantees

A financial guarantee is a financial guarantee - what

difference does it make?

1) Guarantee of loan debt:

claim is for the debt (definite sum)
prove that the debt is due

2) Guarantee for performance and to pay for completion:

claim is for damages (specific performance very unlikely)
breach of contract
breach has caused loss
loss was reasonably foreseeable at the time of contract
have taken mitigation steps to limit loss, etc.
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Conclusion

> Reference to "Limited recourse" is no longer sufficient in

todays developed market

> Parties to be clear on the commercial agreement

> Term sheet to be explicit and well-drafted with sufficient

detail on key provisions of Sponsor recourse

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 Speaker profile

Andrew Nimmo is a Partner in the international finance

Singapore
group of Watson, Farley & Williams Asia Practice,
specialising in the offshore oil & gas and shipping sectors.
He acts for a wide variety of contractors, sponsors, owners
and operators as well as for financiers (comprising
international banks, private equity funds and other
Andrew Nimmo financial institutions) in relation to offshore production,
Partner storage and drilling assets, support vessels and other
offshore oil & gas assets. Andrew advises on project and
asset financings, leasing transactions and joint venture
animmo@wfw.com structures and also on commercial oil & gas and shipping
+65 6551 9127 documentation including construction/conversion
contracts, EPCI contracts, charterparties and asset sale and
purchase contracts. Andrew trained and qualified in the
London office of Watson Farley & Williams, and
subsequently in 2004 relocated to the firms Singapore
office where he is still based.

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For information about how Watson, Farley & Williams Asia Practice
LLP is authorised and regulated see the legal notices section on our
website www.wfw.com.
Any reference to a partner means a member of Watson, Farley &
Williams LLP or Asia Practice LLP, or a member or partner in an
affiliated undertaking, or an employee or consultant with equivalent
standing and qualification.
This presentation constitutes attorney advertising.
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