Continental Power (CP) builds and operates renewable energy generation facilities across Europe. It is considering expanding its business into a number of developing countries. This expansion would require large capital investments which CP would prefer to finance using debt. CPs corporate finance advisors believe that the company could not issue additional debt without significantly impacting its credit rating. These projects are generally of a finite life and require little ongoing capital investment once operating. CP is concerned about the impact of political risk in the proposed locations. CPs advisors have suggested financing, developing and operating these projects using project finance structures rather than corporate finance (as has been the practice to date).

Required:

(i) Explain how project financing and corporate financing structures differ.

(ii) Outline how a project financing structure could be developed for the overseas projects. Address the following elements of the structure:

- Corporate and Legal Structure

- Capital Structure

- Distribution of Project Cash-Flows

- Risk Management

- Lender Recourse to CP for Project Debt