May have a range of meanings in the finance sector. In project finance the most common meanings are:
- A loan instrument used as an alternative or in addition to bank financing – a “Project Bond”. The project SPV raises debt by selling bonds to investors – usually through the intermediary of an investment bank, which arranges and places the bond issue on behalf of the SPV. Bond financing typically carries a fixed rate of interest;
- Guarantees issued on behalf of a construction contractor within the framework of a Fixed Price Turnkey (FPTK) Contract, such as a Bid Bond, Performance Bond, Advance Payment Guarantee, Retention Bond or Warranty Bond. Such instruments will typically be issued in favour of the SPV by a bank or other financial institution acting on behalf of the contractor. Lenders to the project will usually insist that the bond should be issued by a bank and be expressed as unconditional and payable on demand.