Production payment financing

Production payment financing

A method of nonrecourse asset-based financing in which a specified percentage of revenue realized from the sale of the project's output is used to pay debt service.

Production Payment Financing

An unsecured debt or line of credit for a business project in which a certain percentage of proceeds from the project's sales are devoted to debt service. For example, if a business borrows $100,000 to expand its widget production, a percentage of the revenue from the sales of the extra widgets is given to the bank until the debt is settled. Because there is no asset securing the debt when it is borrowed, the lender has no recourse in case of default.
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Some up-side potential has been maintained through the use of exploration farmouts, while down-side risk has been managed through the use of price hedging and volume-based production payment financing.
The higher debt levels primarily reflect use of coal production payment financing and borrowings used to finance the Lauralco smelter project.
In addition to the Offering, the company is currently evaluating all available alternatives to finance its capital requirements including joint venture partnerships, vendor financings, leveraged lease financings, production payment financings, a series of debt and/or equity offerings and the sale or farmout of all or a selected portion of its properties and the possible merger of the company with an industry partner with sufficient capital resources available to complete the development of the company's properties.
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