Assignment as securities under project financing transaction

What is assignment? Please explain how assignment as security under project finance functions; how it is important; and what the major provisions under assignment agreement are. As for the broad definition, assignment refers to transfer of rights in real property or Personal Property to another that gives the recipient—the transferee—the rights that the owner or holder of the property—the transferor—had prior to the transfer. Likewise, Section 306 of Thailand Civil and Commercial Code implies that assignment is the transfer of an obligation performable to a specific creditor. The law determines the form of this juristic act by which it is not valid unless it is made in writing. As a practical matter, a lender insists on the security arrangement even though enforcing security does not provide a creditor with the assurance that the claim thereby secured will be discharged in full. The creditor, however, wants to ensure that his claim will be paid to the extent of the value of assets over which security has been granted. In addition to mortgage and pledge, the assignment of four certain kinds of contracts, namely construction, supply, insurance and off-take agreement, are typically required by the lender, and are embodied in security package. It should be noted that the assignment, in general, does not constitute preferential rights. The simple reason why the lender demands security is that the lender wants to enforce any securities in any ways they want. As a result, the lender needs assignment as one of securities. In the light of particular rationales for the assignment as securities, the lender wants to ensure that the terms and conditions in said four contracts will not be amended without his consent because the creditor relies upon the specified terms and conditions, even misrepresentation, in the contracts which he examined when he considered granting loan to the borrower. Moreover, the creditor can guarantee that during the life of the contract if there is any money to be paid arising from the obligations stipulated in the contracts. The creditor shall be legally entitled to such amount of money. To demonstrate, in case the off-taker pays the price of goods or services produced by the project in accordance with the off-take agreement, the creditor, as a transferee of the assignment of off-take contract can claim on the off-taker for the money to be paid. With regard to an ordinary course of business of a bank, probably the largest lender in project financing matter, when the borrower defaults on the loan, the bank does not want to keep the project, but it will resell the project to any potential buyer in order to gain money to compensate the outstanding debt. The bank may reap benefits from reselling by means of appreciating the project’s value. The effective way the bank will choose is to enforce the contracts such as construction and machinery supply contract to complete the whole project. The major provision of the assignment is likely that when a party to a contract – the borrower – assigns the contract to someone else, it means that borrower, known as the assignor, has transferred its rights under the contract to the lender, known as the assignee, and also has delegated its obligations to the assignee. As a consequence, the lender shall have rights to claim any obligations to be performed by the party who have duties in accordance with the contractual terms, or enforce the contracts for his own benefits.