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Risk Shifting Through Nonfinancial Contracts: Effects on Loan Spreads and Capital Structure of Project Finance Deals

Journal of Money Credit and Banking, Vol. 42, No. 7, October 2010

26 Pages Posted: 3 Sep 2010  

Francesco Corielli

Bocconi University - Department of Finance

Alessandro Steffanoni

Interbanca S.P.A. - ABN AMRO Group

Stefano Gatti

Bocconi University - Department of Finance

Multiple version iconThere are 2 versions of this paper

Date Written: September 2, 2010

Abstract

We study capital structure negotiation and cost of debt financing between sponsors and lenders using a sample of more than 1,000 project finance loans worth around US $195 billion closed between 1998 and 2003. We find that lenders: (i) rely on the network of non-financial contracts as a mechanism to control agency costs and project risks, (ii) are reluctant to price credit more cheaply if sponsors are involved as project counter-parties in the relevant contracts, and finally (iii) do not appreciate sponsor involvement as a contractual counterparty of the special purpose vehicle when determining the level of leverage.

Keywords: project finance, contractual arrangements, long-term contracts

JEL Classification: F34, G21, G32, K12

Suggested Citation

Corielli, Francesco and Steffanoni, Alessandro and Gatti, Stefano, Risk Shifting Through Nonfinancial Contracts: Effects on Loan Spreads and Capital Structure of Project Finance Deals (September 2, 2010). Journal of Money Credit and Banking, Vol. 42, No. 7, October 2010. Available at SSRN: https://ssrn.com/abstract=1670656

Francesco Corielli

Bocconi University - Department of Finance ( email )

Via Roentgen 1
Milano, MI 20136
Italy

Alessandro Steffanoni

Interbanca S.P.A. - ABN AMRO Group ( email )

corso Venezia 56
Milano
Italy
0039-02-7731599 (Phone)
0039-02-7731930 (Fax)

Stefano Gatti (Contact Author)

Bocconi University - Department of Finance ( email )

Via Roentgen 1
Milano, MI 20136
Italy

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