PhD defence G.F. (Federico) Wesselhoefft

Project finance contracts (PFCs) involve the completion of a highly specific project by allocating it under the ownership of a dedicated special purpose legal vehicle (SPV) before financing it with non-recourse (uncollateralised) debt. This SPV is owned and fully controlled by the sponsors, who are the providers of all critical (specific) material inputs for the project. Consequently, in the absence of collateral or recourse to third parties, the feasibility of non-recourse finance depends on the quality with which the lender enforces upon the sponsors a set of arrangements procuring that, in all foreseeable eventualities, the fully controlled SPV receives all financial and material inputs necessary for completing the predefined project and repay the debt. 
Subsequently, in PFCs, the distributable welfare depends on the completeness and enforceability with which parties define all aspects of a unique time-limited project contractually. This is opposite to the business diversification objectives for which legislators shape the rules of business company forms. Accordingly, in PFCs, parties rescue the functionality of the legal personality and the limited liability protection, and modify most of the remaining default rules governing the SPV (its company type). Thyus, as a result of the strategic tensions idiosyncratic of PFCs, the sponsors and the non-recourse debt lender implement clauses that we see in all PFCs, but not in other scenarios. Finally, because such strategic tensions are not well-understood today, judges also fail to complete such necessary clauses according to their desired functionality. All this results in dramatic transaction cost-induced underinvestment and cost overruns -both commonplaces in the literature of finance and management.
The research pursues three objectives in three parts (10 chapters). First, based on observations of practices and strategic considerations, the work isolates the elements and features necessary in PFCs. In FPCs, we always find sponsors, one or more SPVs, a unique predefined project, a non-recourse lender (or a group of them acting in coordination), and a risk allocation mechanism. Additionally, in PFCs the sponsors always control the SPV and its assets, they are always the best-informed parties, and they always respond to the same tiers of incentives that we do not see in other environments -v.gr., clauses implemented by the lender, clauses enforceable by the sponsors only, and individual allocations of property rights (expected dividends from the SPV). Finally, the feasibility of PFCs always depends on contractual interactions defined by parties other than the formal debtor of the non-recourse debt (i.e., the fully controlled single project-instrumental SPV). In the absence of collateral or recourse to third parties, the imperfections of these agreements always result in externalities to the non-recourse lender. 
Second, the study identifies the strategic features inherent to the positions of all parties in PFCs. There are necessary tensions between the sponsors (individually and collectively) and the non-recourse lender, and among the sponsors. The sponsors always perceive distinctive incentives for withholding socially valuable contributions (shirking), choosing technologies riskier than socially desirable (risking), and innovating for saving costs without internalising consequences (shading). The sponsors respond to these incentives individually, within opportunistic sub-coalitions, or after colluding against the non-recourse lender. All tensions grow with many factors, of which the deterioration of expectations to residual benefits invariably dominate.
Finally, in the third part, the research identifies the places where the current legal treatment (v.gr., the set of diversification-oriented default rules of company forms) is necessarily distortive. Consequently, as ways for legal research, the work advances three groups of propositions for legal treatment: first, five pillars for the legislative institutionalisation of PFCs in a PFC form; second, three principles for the ex-post completion of clauses; and third, four postulates characterising optimalities in PFCs. All propositions -both the strategic analyses and legal proposals- build on features inherent to the positions of parties in all PFCs. Thus, they hold robustly irrespective of project configurations, legal implementation, and changes in external conditions (evolution of incentives and expectations).

Due to corona, the PhD defences do not take place publicly in the usual way in the Senate Hall or in the Professor Andries Querido Room. The candidates will defend their dissertation either in a small group or online.