Loan Pricing in Project Finance

Posted: 3 Sep 1999

See all articles by Stefanie Kleimeier

Stefanie Kleimeier

Maastricht University - Department of Finance; Open Universiteit; Univ. of Stellenbosch Business School

William L. Megginson

University of Oklahoma

Date Written: November 1994


This paper compares the pricing of traditional, on-balance- sheet loans (TL) with a corresponding sample of project finance loans (PFL), where project finance is defined as "limited or non-recourse financing of a newly to be developed project through the establishment of a vehicle company." We study 123 PFLs and 207 TLs announced between 1979 and 1993 that were designed to finance an identifiable project. This study makes three principal contributions. First, we document that the pricing factors are the same for TL and PFL, suggesting that both types of loans are priced in a single market--rather than in segmented markets. Second, as predicted by the limited recourse nature of PF lending, we find that PFL have, on average, higher loan rates than TL. Finally, we document that loan prices (rates) are significantly positively related to loan maturity and project country risk, and negatively related to the degree of output price risk and the presence of a project sponsor loan guarantee.

JEL Classification: F34, G15, G21, G32

Suggested Citation

Kleimeier, Stefanie and Megginson, William L., Loan Pricing in Project Finance (November 1994 ). Available at SSRN:

Stefanie Kleimeier

Maastricht University - Department of Finance ( email )

Maastricht, 6200 MD

Open Universiteit

Valkenburgerweg 177
Heerlen, 6419 AT

Univ. of Stellenbosch Business School

Carl Cronjé Drive
CAPE TOWN, Cape Town 7535
South Africa

William L. Megginson (Contact Author)

University of Oklahoma ( email )

307 W Brooks, 205A Adams Hall
Norman, OK 73019
United States
(405) 325-2058 (Phone)
(405) 325-1957 (Fax)


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