Conditions precedent (CPs) in project finance
Conditions precedent, or CPs, are the things that must be satisfied before a lender is obliged to advance funds. In a project financing a single facility can carry dozens to hundreds of them, specific to the project.
What a condition precedent is
A lender signs a loan in principle, but only on the condition that a set of things are in place first. Those things are the conditions precedent. They protect the lender by making sure the risks it priced are actually addressed before any money is drawn. On a project financing they usually fall into a few groups:
- Corporate: the borrower exists, is authorised, and has passed the right resolutions
- Legal: the finance and security documents are signed, with legal opinions
- Land and access: servitudes, wayleaves and rights over the site
- Permits and consents: environmental authorisations, licences and approvals
- Insurance: the required cover is in place and evidenced
- Environmental and social: the agreed ESAP and safeguard requirements
Conditions precedent versus conditions subsequent
A condition precedent must be satisfied before drawdown. A condition subsequent must be satisfied after drawdown, within an agreed period, often because it cannot realistically be completed before funds are needed. Both are obligations that have to be tracked to closure. Treating a condition subsequent as if it were closed simply because money has flowed is how gaps appear later.
Waivers, consents and the longstop date
Not every condition is met on time. A lender can waive a condition precedent or grant a consent, usually in writing, so a drawdown can proceed while the item is finished. The longstop date is the backstop: the deadline by which conditions must be met, after which the parties may renegotiate or walk away. A waiver, a consent and a longstop only work if the current position is clear to everyone, which is exactly where a spreadsheet passed between parties starts to fail.
From CP satisfaction to drawdown
Conditions precedent gate the money. The conditions precedent to first drawdown gate the first release of funds. Each tranche then carries its own conditions to drawdown. The developer wants to know what still stands between it and the next drawdown. The lender wants to know the conditions are genuinely met before it releases funds. The same list, read honestly by both sides, is what keeps a drawdown on schedule.
Where Capital Governance fits
Capital Governance holds the conditions precedent as a live, shared register rather than a circulated spreadsheet. Each CP has an owner, a due date, a clear statement of what closes it, and a status. Waivers and confirmations are recorded against the item, and the trail behind each one is kept. Funds release against a complete list every party can see, not a best guess.