Non-recourse

What no recourse means

The borrower is the project company. If its cash flow falls short, the shareholder loses the capital put in, but the lender has no claim on the rest of their assets. For the shareholder that caps the loss; for the lender it moves the entire assessment onto the project.

Pure forms are rare. What is usual is limited recourse, mostly during construction: a completion guarantee, an obligation to inject further funds until commissioning, or a guarantee covering individual risks that falls away on acceptance. After that the project stands on its own.

Why the covenants are so tight

Because nothing but the project stands behind the loan, everything touching cash flow is nailed down contractually. That includes a minimum coverage ratio as an ongoing covenant, a debt service reserve account, a distribution lock below a defined threshold, priority of debt service over any distribution, and assignment of the material contracts and accounts to the lender.

Those covenants are not suspicion; they are the substitute for the missing recourse. They cost flexibility: a company in this structure cannot use its revenue freely, and any change to the contracts the cash flow comes from needs the lender's consent.

The tail

The tail is the period between the final repayment and the end of contracted revenue. It is the lender's reserve: if construction slips, a year comes in weak, or the loan has to be restructured, the tail is the time in which that can be repaired.

Loan tenor is therefore never as long as the remuneration period. A project with twenty years of remuneration and a nineteen-year loan has no tail, and underwriting either shortens the loan or adds equity.

For a shareholder the decisive question is not whether non-recourse is available but what it costs. It demands more equity, tighter coverage and a contractual apparatus that bears no proportion to the volume of a small project.

Below a certain size the usual route is therefore a loan with recourse or with a guarantee: cheaper, faster and lighter on documentation. The clean separation becomes interesting when a portfolio is meant to grow without every further project weighing on the shareholder's balance sheet.

In the pack the difference shows in one place: where revenue is not contracted but comes from market prices, a non-recourse structure carries that only with considerably more equity. An offtake agreement covering the loan tenor is the cheapest way to avoid that premium.