PPP projects are typically funded using non-recourse or limited-recourse project finance. Unlike corporate loans backed by the borrower’s total assets, project finance debt is repaid solely out of the cash flows generated by the specific infrastructure asset. Lenders have no recourse to the general assets or tax revenues of the state if the project fails.

PPP financial structures utilize a high degree of leverage, typically maintaining a debt-to-equity ratio between 70:30 and 80:20:

[ Senior Debt (70-80%) ] -------> Sourced from commercial banks and Development Finance Institutions (DFIs)
[ Mezzanine / Subordinated ] ----> Subordinated debt instruments bridging the gap between equity and senior loans
[ Equity (20-30%) ] ------------> Injected by private sponsors and infrastructure investment funds

Lenders monitor the financial health of the SPV using the Debt Service Coverage Ratio (DSCR). The DSCR measures the operating cash flow available to service principal and interest payments in a given period. A minimum DSCR target (e.g., 1.2x to 1.4x) is hardcoded into the financing agreements; if the SPV’s cash flows drop below this threshold, it triggers financial covenants and contractual intervention rights for the lenders.