General Studies · Debt Service Reserve Account in Infrastructure Financing
In the structural framework of non-recourse project finance for infrastructure, lenders often require the establishment of a Debt Service Reserve Account (DSRA). What is the primary objective of this mechanism?
- 1To convert the project debt into equity automatically if the project fails to reach the commercial operation date.
- 2To provide a full sovereign guarantee that offsets the need for any technical or commercial due diligence by the bank.
- 3To allow the project sponsors to withdraw surplus funds as dividends before any interest payments are made to the lenders.
- 4To act as a liquidity buffer ensuring that debt obligations can be met during periods of temporary cash flow shortfalls or operational delays.✓
Correct answer
To act as a liquidity buffer ensuring that debt obligations can be met during periods of temporary cash flow shortfalls or operational delays.
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