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Infrastructure force majeure rules in pandemic vary widely: Fitch Ratings
来源： 编辑：编辑部 发布：2020/04/25 09:48:26
THE right to invoke force majeure (FM) in infrastructure and project finance is under greater scrutiny due to the pressures from the coronavirus pandemic, says Fitch Ratings.
FM definitions in infrastructure transaction documents range from very limited, specifying particular events, to broadly covering any events out of the control of either party. Issuers may be negatively affected following a successful claim of FM, depending on the remedy exercised, said the Fitch statement.FM is intended to excuse performance when extraordinary events affect the ability of parties to perform. Narrower definitions in infrastructure project documents are often limited to events that cause physical damage to the asset.
Although a FM definition may not cover a pandemic, related government actions, including a declaration of emergency or suspension of travel, may fall within the definition and create a possibility of contractual relief.
There are also common law concepts, such as impossibility of performance, which may be invoked if FM does not provide relief. Fitch expects to see an increase in the invocation of contract clauses, FM or others, which may allow parties flexibility on contract non-performance.
Infrastructure parties are expected to work through these issues through negotiation, although an increase in litigation is also possible. When time and/or dollar amounts are disputed, transaction parties may not be made whole, or if disagreements cannot be resolved, the entire project is at risk. We will assess and reflect the effect of the activation of FM or other provisions, breach of contract, or litigation in our ratings.
FM definitions in infrastructure transaction documents range from very limited, specifying particular events, to broadly covering any events out of the control of either party. Issuers may be negatively affected following a successful claim of FM, depending on the remedy exercised, said the Fitch statement.FM is intended to excuse performance when extraordinary events affect the ability of parties to perform. Narrower definitions in infrastructure project documents are often limited to events that cause physical damage to the asset.
Although a FM definition may not cover a pandemic, related government actions, including a declaration of emergency or suspension of travel, may fall within the definition and create a possibility of contractual relief.
There are also common law concepts, such as impossibility of performance, which may be invoked if FM does not provide relief. Fitch expects to see an increase in the invocation of contract clauses, FM or others, which may allow parties flexibility on contract non-performance.
Infrastructure parties are expected to work through these issues through negotiation, although an increase in litigation is also possible. When time and/or dollar amounts are disputed, transaction parties may not be made whole, or if disagreements cannot be resolved, the entire project is at risk. We will assess and reflect the effect of the activation of FM or other provisions, breach of contract, or litigation in our ratings.