By National Standard Finance LLC (www.NatStandard.com) In emerging markets and higher-risk geographies, infrastructure projects often fail to reach financial close for a familiar reason: credit risk overwhelms otherwise sound economics. Even when demand is real and engineering is solid, lenders price political, convertibility, off-taker, and payment risks into margins, tenors, covenants, and reserve requirements often to the point where the capital structure becomes non-viable. National Standard Finance LLC (NSF), a U.S.-based global infrastructure investment and advisory firm focused on sovereign and government-linked infrastructure and project finance, has long emphasized that “bankability” is engineered as much in the legal and credit architecture as in the technical design. As Russell Duke, President and CEO of National Standard Finance LLC, puts it: “Infrastructure does not fail due to lack of need—it often fails or is delayed due to poor structuring and lack of project fitted financing.” Two of the most powerful—and most frequently misunderstood—tools for improving bankability in these environments are (1) sovereign guarantees 2) export credit agency (ECA) guarantees/insurance and 3) political risk insurance (PRI). Used correctly, they can compress pricing, extend tenor, increase leverage, and crowd in international liquidity. Used poorly, they can create unenforceable support packages, trigger hidden fiscal constraints, or undermine the credibility of the broader sovereign balance sheet. This article provides a technical, transaction-oriented playbook for deploying these instruments in infrastructure loans and project finance. 1) Start with the risk map lenders actually underwrite Before selecting a guarantee structure, build a lender-grade risk map across four buckets:
Guarantees do not “solve” all risks. They re-allocate specific risks to counterparties that markets will accept at lower cost of capital. 2) Sovereign guarantees: what they are—and what banks require to treat them as creditA. The practical purpose A sovereign guarantee is a government-backed credit support undertaking that shifts defined project obligations (typically payment obligations) onto the sovereign. In infrastructure finance, it is most often used to backstop:
When a sovereign guarantee is credible and enforceable, banks can underwrite to the sovereign (or sovereign-plus structure) rather than solely to a project company and a thinly capitalized off-taker. B. Structural options banks recognize In practice, lenders see four main sovereign-support “tiers,” in ascending strength:
The key is aligning the chosen instrument with what lenders can enforce, and what the sovereign can legally and fiscally support. C. Documentation essentials that drive bankability A sovereign guarantee becomes “financeable” when it contains the features credit committees look for:
D. The fiscal reality: guarantees must fit the sovereign’s constraints Many ministries will agree politically to “guarantee,” but later discover that:
Treat this as a design input, not an afterthought. A “partial” guarantee can still be bankable if it is precisely targeted—e.g., guaranteeing termination payments and political force majeure compensation while leaving ordinary operating performance with the project. 3) ECA guarantees and insurance: how to use them to unlock tenor, price, and liquidityA. What ECAs typically cover Export credit agencies support exports of goods/services from their home countries through:
In project finance, ECA support is valuable because it can provide comprehensive political + commercial risk cover and materially improve the debt package economics. As PwC notes, ECA products can cover political risk events such as exchange controls, expropriation, war, and similar disruptions that are hard or expensive to insure commercially. Coverage percentages vary by program and structure; major ECA programs often cover a substantial portion of eligible exports and related financings, and can be structured as “comprehensive” cover (commercial + political) depending on the product. B. The “ECA-enabled” project finance architecture A standard ECA-supported infrastructure debt stack often looks like:
The ECA tranche anchors the package: it sets a “floor” for tenor and a “ceiling” for overall risk premium, enabling the rest of the syndicate to participate on improved terms. C. OECD Arrangement considerations (tenor and rules) For many ECAs, terms are influenced by the OECD Arrangement on Officially Supported Export Credits, which governs key parameters of official export credit support (scope, forms of support, and limitations on terms). Recent reforms have expanded flexibility in certain cases (including longer tenors for specific categories under the Arrangement’s sector understandings). Practical implication: you should design procurement and contracting early to preserve ECA eligibility, local cost rules, and content thresholds—otherwise you discover “too late” that the project cannot access the ECA tenor you modeled. 4) Combining sovereign guarantees and ECA support: the highest-leverage bankability move The most bankable structures in higher-risk markets often combine:
NSF’s advisory posture aligns with this integrated lens mobilizing “long-term capital from development banks, export credit agencies, and private lenders” as part of a financeable blueprint. 5) A step-by-step playbook to execute these credit supports in real transactionsStep 1: Decide what must be guaranteed—and what should not be Over-guaranteeing creates fiscal and political resistance; under-guaranteeing leaves banks unconvinced. Focus sovereign support on non-diversifiable risks:
Use ECA cover to address export-related financing risk and political risk for lenders. Step 2: Engineer the procurement and contracting to be ECA-eligible ECA feasibility is often won or lost in procurement design:
Step 3: Align the government support agreement (GSA) and guarantee with lender remedies Banks require a remedies path that is contractually coherent:
Step 4: Structure the intercreditor and security package around the ECA tranche Common approaches include:
Step 5: Stress test the “guarantee-on-paper” against real-world payment mechanics A guarantee is only as good as its payment plumbing:
Step 6: Present the bankability narrative as a single, integrated credit story Credit committees respond to coherence. The deal must read as a unified answer to: “Why will this asset deliver predictable and uninterrupted cashflow to lenders through political cycles?” This is consistent with NSF’s broader emphasis on structuring projects “in a way institutional capital can support and find attractive.” As Russell Duke states: “Infrastructure does not fail because governments lack vision. It fails when projects are not structured in a way capital can support.”6) Common pitfalls—and how to avoid them
In higher-risk and emerging-market infrastructure finance, Political Risk Insurance (PRI) functions as the third core credit-enhancement instrument alongside sovereign guarantees and Export Credit Agency (ECA) guarantees or insurance. While sovereign and ECA support address specific public-sector and export-linked risks, PRI is uniquely designed to absorb residual political and sovereign risks that cannot be efficiently mitigated through contractual allocation alone. From a lender and rating perspective, PRI converts uncertain political outcomes into defined, insurable credit events backed by highly rated multilateral institutions or commercial insurers. When structured correctly, PRI can materially improve debt tenor, pricing, leverage, and in some cases internal credit ratings applied to a transaction.
1. Breach of Contract Insurance
Breach of contract coverage protects lenders and investors against a sovereign, sub-sovereign, or state-owned enterprise failing to honor contractual payment or performance obligations under project agreements such as concessions, power purchase agreements, or availability-based PPP contracts. Coverage is typically triggered after an arbitral award or final judgment remains unpaid beyond a defined waiting period. This effectively transfers enforcement risk from the project to the insurer’s balance sheet. 2. Non-Honoring of Sovereign or Sub-Sovereign Financial Obligations
Non-honoring coverage protects lenders against failure by a sovereign, sub-sovereign, or state-owned entity to make scheduled debt service payments, even absent a formal default or acceleration. From a credit committee standpoint, this coverage operates as credit substitution and is frequently treated as equivalent to insured sovereign risk, improving internal ratings and capital treatment. 3. Currency Inconvertibility and Transfer Restriction
This coverage insures against the inability to convert local-currency revenues into hard currency, or to transfer funds offshore due to capital controls, foreign exchange shortages, or regulatory intervention. It directly addresses one of the most common causes of technical default in emerging-market infrastructure projects that otherwise perform operationally. 4. Expropriation, Nationalization, and Political Violence
PRI also covers outright or creeping expropriation, nationalization, and losses arising from war, civil disturbance, or political violence. While low probability, these risks carry catastrophic severity and are generally unacceptable to international lenders without insurance support.