When it comes to project finance, one of the most important legal documents is the depositary agreement. It is a vital tool that helps to manage the risks associated with the project and creates a mechanism to secure interests of the lenders in the project.

A depositary agreement is essentially a contract between the borrower, the lenders and a depositary agent. The depositary agent acts as a neutral third party and holds certain documents and assets on behalf of the lenders.

The main purpose of the depositary agreement is to ensure that lenders are paid back their principal and interest in a timely manner. This is accomplished by giving the depositary agent control over certain assets, such as cash flows from the project, and by creating a priority of payment scheme.

The depositary agent is responsible for the distribution of funds to the lenders in accordance with a pre-agreed payment waterfall. This means that certain lenders will be paid out before others, depending on the agreed priority of payment.

The depositary agreement also has provisions for the release of assets held by the depositary agent. This can happen when certain conditions are met, such as when a percentage of the project has been completed or when certain financial ratios have been achieved.

In addition to managing cash flows, the depositary agreement can also help to manage risks associated with the project. For example, the depositary agent may hold insurance policies or performance guarantees that are issued by third parties.

Overall, the depositary agreement is a crucial part of project finance and helps to ensure the success of the project for all parties involved. As a copy editor, it is important to understand the importance of this legal document and to ensure that it is accurately and clearly communicated to all stakeholders.