Emerging Credit Risks in Project Finance Transactions
This commentary was produced by Morningstar DBRS, a member of IPFA.
Project finance transactions generate stable cash flow through a single-purpose vehicle to repay debt and distribute equity, with reduced revenue volatility through long-term contracts and operational risks passed to experienced operators. Historically, they involve fully amortising debt, fixed interest rates, and restrictive covenants, allowing for greater leverage than traditional corporate credit. Originally centred on power generation, project finance has expanded into energy, digital infrastructure, and intangible assets, offering new financing opportunities. However, this growth introduces emerging risks that require more detailed analysis due to the high leverage involved.
This commentary outlines the key emerging risks and trends in project finance and their potential credit implications for stakeholders.
