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    This paper draws heavily on a manuscript presented at the 1999 Harvard Business School/Journal of Financial Economics Conference on Field-Based Research, and we appreciate the comments received from conference participants-especially Steve Kaplan and Paul Gompers. We also thank Ben Esty, Chris Cornwell, Michel Habib, Jimmy Hilliard, Larry Lang, Carlos Maquieira, John Martin, Ashoka Mody, Mitch Petersen, Annette Poulsen, David Schirm, Bill Schwert, Joe Sinkey, and Art Snow for helpful comments and suggestions. Finally, we are especially grateful for the financial support of the University of Oklahoma's Michael F. Price College of Business, which allowed us to purchase the Loanware database used in this study.


This paper provides the first full-length empirical analysis of project finance, which is defined as “limited or non-recourse financing of a newly to be developed project through the establishment of a vehicle company.” The article compares the characteristics of a sample of 4,956 project finance loans (worth $634 billion) to comparable samples of non-project finance loans, all of which are drawn from a comprehensive sample of 90,784 syndicated loans (worth $13.2 trillion) booked on international capital markets since 1980.

The authors find that project finance (PF) loans differ significantly from non-project finance loans in that PF loans have a longer average maturity, are more likely to have third-party guarantees, and are far more likely to be extended to non-U.S. borrowers and to borrowers in riskier countries. Project finance credits also involve more participating banks, have fewer loan covenants, are more likely to use fixed-rate rather than floating-rate loan pricing, and are more likely to be extended to borrowers in tangible-asset-rich industries, such as real estate and electric utilities. Despite being nonrecourse finance, floating-rate project finance loans have lower credit spreads (over LIBOR) than do most comparable non-PF loans. The authors also report that projects funded with PF loans are heavily leveraged, with an average loan to value ratio of 67%.

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