As a general rule, financiers require that a direct relationship be established between itself and the contracting party, obtained through the application of a tripartite act (sometimes called an act of approval, direct agreement or ancillary agreement). The trilateral act describes the circumstances under which financiers can “intervene” in project contracts to nullify a possible default. A financial model is developed by the promoter as an instrument of negotiation with the investor and project expertise. This is typically a table designed to process a complete list of bid assumptions and provide expenditures that reflect the expected “real” interaction between the data and the values calculated for a given project. The financial model is well designed to perform sensitivity analyses, i.e. calculating new results based on a series of data variations. Banks consider a liquidity default or cost overrun to be a drawtop event, meaning that the borrower in the project business can only obtain loan funds once the situation has been resolved. The bank will then inform the sponsor of a certain amount of assistance needed to cover the deficit and ask him to discuss whether to do so through debt or equity: a subordinated loan or a capital increase. Once a joint decision has been made, the bank`s promoter will confirm in writing the agreed support method and will have to implement it within one month. Simply put, the banks say that if the borrower of the project company does not have enough money to repay the loan and interest at any time during the term of the loan — say, five to seven years, even during the operating period well after the end of the project — the sponsor must go up and help pay. In fact, if the borrower does not pay, the sponsor must pay.
Admittedly, all this is a personal guarantee of concealment and a distortion of the purpose of sponsoring aid. A prudent and savvy sponsor should not let this pass. By derogation from the typical dependence of project revenues and the separation of debts between the sponsor and the project company, Thai banks sometimes pool the sponsor with the project and need a simple personal guarantee from the sponsor. Sponsor support is still common. Banks rarely ask for both a personal guarantee and sponsor support in the same project, but sometimes a personal guarantee is seen “hidden” in a sponsor support contract.