LDDR Update Report

The Client under the new CA is Sports Boulevard District Cooling Company (SBDC), a subsidiary of Sports Boulevard Foundation (SBF). This replaces DGCL, which was a subsidiary of the Public Investment Fund (PIF). SBF, while a government-related entity, does not carry the same implicit sovereign credit support as PIF. The CA contains no express sovereign guarantee or payment security from SBF or any higher-tier government entity. The Provider's sole contractual counterparty for payment obligations is SBDC.

Lenders should require: (a) a comprehensive credit assessment of SBDC and SBF, including audited financial statements and capitalization evidence; (b) confirmation of SBF's legal status and relationship to the Saudi government; (c) consideration of whether a parent guarantee from SBF or a letter of comfort from the relevant government ministry should be a condition precedent to Financial Close. Clause 26.6 provides some protection by requiring SBDC to procure a guarantee if it ceases to be wholly government-owned, but this is reactive rather than proactive credit support. The absence of Payment Security (which was also absent in the DGCL precedent) is a material bankability concern that should be addressed through the financing documents or a side letter.

The new CA provides for an initial ETS Maximum Cooling Capacity of 23,499 RT, compared to the precedent's 26,254 RT Anchor Load. However, the Minimum Cooling Capacity required as a Condition Precedent to Financial Close is only 20,000 RT. This is a CP threshold, not a contractual anchor load guarantee. If fewer buildings are confirmed by Financial Close, the Provider proceeds with a smaller initial system. The Diversity Factor (68.1% for Initial Stage) further reduces effective billing capacity — 23,499 RT at 68.1% diversity yields approximately 16,003 RT of Building Allocated Capacity for billing purposes.

The combination of (a) lower headline capacity, (b) a CP threshold of only 20,000 RT, and (c) the Diversity Factor application creates a materially different demand risk profile from the DGCL precedent. Lenders should: (i) require the financial model to be stress-tested at the 20,000 RT minimum with diversity applied; (ii) confirm that debt service coverage ratios remain adequate at the minimum capacity scenario; (iii) consider whether additional CSA commitments should be a CP; (iv) obtain LTA confirmation on the engineering basis for the Diversity Factor percentages. The Diversity Factor is a technical concept reflecting that not all connected buildings demand peak cooling simultaneously — it is sound engineering but reduces the revenue base below headline capacity figures.

The Diversity Factor is an entirely new concept not present in the DGCL CA. It is defined as the ratio applied to the ETS Maximum Cooling Capacity of each building to derive the Building Allocated Capacity, which is the basis for Capacity Charge billing. The factors are: Initial Stage 68.1%, First Expansion 72.55%, Second Expansion 65.0%. These are fixed contractual percentages, not dynamic operational measurements. The effect is that the Provider bills for significantly less capacity than is physically installed and connected.

Lenders should understand that the Diversity Factor reflects the engineering reality that district cooling systems are sized for peak coincident demand across a portfolio of buildings, not the sum of individual building peaks. However, from a financing perspective, this means: (a) the installed capacity (CapEx driver) is larger than the billing capacity (revenue driver), creating a structural gap; (b) if actual diversity is worse than assumed (i.e., more buildings demand peak cooling simultaneously), the system may be undersized, but the Provider cannot bill for the excess; (c) the contractual lock on these percentages means no adjustment if actual usage patterns differ. Lenders should require the LTA to confirm the engineering basis and whether the percentages are conservative, central, or aggressive relative to comparable district cooling systems in the GCC.

The SBF CA introduces a Building Owner Risk Event as a new risk category. This is defined in the Cooling Services Agreement (CSA) and referenced in the CA. A Building Owner Risk Event occurs when a building owner connected to the district cooling system causes or contributes to a disruption — for example, by modifying their building's cooling interface without the Provider's consent, by failing to maintain their side of the energy transfer station, or by exceeding their contracted cooling demand. The CA provides that Building Owner Risk Events are not treated as Interruptions of Service for KPI/IOS Deduction purposes, protecting the Provider from performance penalties arising from building owner actions.

This is a positive provision for the Provider and lenders. In the DGCL CA, there was no express carve-out for building-owner-caused disruptions — the Provider bore the risk of IOS Deductions regardless of cause. The SBF CA recognizes that in a multi-building district cooling system, the Provider cannot control individual building owner behavior. Lenders should: (a) confirm the definition in the CSA is adequate and covers the foreseeable building owner risk scenarios; (b) verify that the CA provision clearly excludes Building Owner Risk Events from the IOS Deduction calculation; (c) consider whether the Provider has adequate contractual remedies against the building owner (via the CSA) to address recurrent Building Owner Risk Events; (d) confirm that the measurement and attribution systems can distinguish between Provider-caused and building-owner-caused disruptions.

The Conditions Precedent to Financial Close have been updated to reflect the SBF CA's new provisions. Notable additions include: (a) completion of CA Novation (Schedule 22) — the SPV must exist and be the CA counterparty before Financial Close; (b) Minimum Cooling Capacity of 20,000 RT must be confirmed through executed CSAs; (c) Local Content Plan approval; (d) Emergency Response Plan framework approval; (e) Environmental baseline survey completion. The standard CPs (financing documents execution, insurance program in place, legal opinions, Security Agent satisfaction) are maintained.

Lenders should: (a) prepare a comprehensive CP checklist mapping CA CPs to financing document CPs to identify any gaps; (b) confirm that the 20,000 RT Minimum Cooling Capacity CP is based on executed (not indicative) CSAs; (c) review the CA Novation CP to ensure it is fully executed and irrevocable before first drawdown; (d) confirm that all lender-required CPs (legal opinions, due diligence reports, insurance) are included even if not expressly listed in the CA; (e) establish a realistic timeline for CP satisfaction given the number of new requirements.

The DGCL CA granted the Provider a Lease over the Site. The SBF CA grants a Sublease. This is a significant structural difference — the Provider's interest in land is one step further removed from the freehold/Crown land. The Client (SBDC) itself holds a lease or license from SBF/the government, and grants a sublease to the Provider. This creates an additional layer of title dependency: the Provider's sublease is contingent on the Client's head lease remaining in force. If the Client's head lease is terminated, the sublease falls away.

Lenders should: (a) conduct a title search and confirm the Client's interest in the land (head lease terms, restrictions, expiry date); (b) confirm that the head lease term extends beyond the concession term plus any extension periods; (c) review whether the head lease permits subletting and whether the sublease form complies with head lease requirements; (d) obtain a legal opinion on the enforceability of the sublease under Saudi real property law; (e) confirm whether the sublease interest can be pledged as security (Saudi law restrictions on pledging leasehold interests should be assessed); (f) consider whether a direct agreement or non-disturbance agreement with the head lessor (SBF/government) should be required. The sublease structure is common in Saudi mega-projects (where Crown land is involved) but creates a chain of title dependency that must be secured.

The Client's reserved rights over the Site and access provisions have been expanded compared to the DGCL CA. The Client retains the right to access the Site for inspection, monitoring, and for carrying out works relating to the wider Sports Boulevard Development. The Provider must accommodate the Client's access requirements, which may include construction works on adjacent parcels that could affect the Provider's operations (noise, dust, access restrictions). The Client's obligation is to use reasonable endeavours to minimize disruption.

The expanded reserved rights reflect the fact that the Sports Boulevard development is a large, multi-phase project and the district cooling site will be surrounded by ongoing construction for many years. Lenders should: (a) confirm that Client access rights cannot materially impede construction or operations — if they do, this should trigger the Compensation Event regime; (b) review whether interference from adjacent construction is expressly covered as a Compensation Event or Relief Event; (c) confirm that the Provider's insurance covers third-party damage from Client/development works on adjacent land; (d) consider whether a 'no material interference' covenant from the Client would be appropriate.

The Hazardous Substances provisions have been expanded. The SBF CA broadens the scope of the Provider's indemnification obligation for hazardous substances introduced by the Provider, its contractors, or subcontractors. The Client retains liability for pre-existing contamination on the Site. However, the burden of proof for establishing whether contamination is pre-existing or Provider-introduced has been shifted — the Provider must demonstrate that contamination was pre-existing, rather than the Client proving it was introduced by the Provider.

The reversal of the burden of proof is significant. If contamination is discovered during construction, the Provider must prove it was pre-existing (which requires baseline environmental data). Lenders should: (a) ensure a comprehensive baseline environmental survey (Phase I and, if warranted, Phase II) is completed before construction commences and is a CP; (b) confirm that the survey results are acknowledged by the Client as the baseline; (c) review the Provider's environmental insurance coverage; (d) include environmental remediation contingency in the financial model. The expanded indemnification scope is otherwise consistent with standard BOOT concession risk allocation.

The Provider's exclusivity right to supply district cooling within the concession area is maintained. However, the SBF CA includes additional carve-outs permitting the Client to install temporary or supplementary cooling in specific circumstances, and the exclusivity boundary may be defined differently given the linear nature of the Sports Boulevard Development (compared to the more contained Diriyah Gate site). The scope of exclusivity should be confirmed against the Site plans.

Exclusivity is critical to the revenue model — any competing cooling supply would directly erode the Provider's revenue base. Lenders should: (a) confirm the geographic scope of exclusivity is clearly defined and mapped; (b) review the carve-outs for temporary/supplementary cooling to ensure they are narrowly drawn and time-limited; (c) confirm that exclusivity survives the transfer of buildings to third-party owners (i.e., building owners must use the district cooling system and cannot install standalone cooling); (d) consider whether the CSAs should include mandatory connection covenants that bind successor building owners.

Under the DGCL CA, the Client could unilaterally direct expansion stages within specified parameters. Under the SBF CA, Expansion Stages require mutual agreement between the Client and the Provider. This changes the expansion mechanism from a Client option to a bilateral negotiation. While this protects the Provider from being forced into uncommercial expansions, it also means the Client can block expansion, and expansions cannot be relied upon in the base case financial model.

Lenders should: (a) not include Expansion Stage revenues in the base case; (b) treat any expansion as upside only; (c) confirm that the Initial Stage capacity alone supports debt service; (d) review the conditions under which either party can refuse expansion and whether good faith obligations apply. The mutual agreement requirement may make it difficult to enforce expansion even if conditions in the CA appear to contemplate it.

The SBF CA explicitly allocates site and ground risk to the Provider. The Provider is deemed to have inspected the Site, satisfied itself as to ground conditions, environmental conditions, access, and all other physical characteristics. The Client provides site access but makes no warranties or representations as to the condition of the Site. Any adverse ground conditions, contamination, or physical impediments discovered after the Effective Date are the Provider's risk. This allocation was implicit in the DGCL CA but is now stated expressly.

The explicit ground risk allocation is standard for BOOT concessions but lenders should: (a) confirm that the Provider has conducted adequate geotechnical and environmental investigations pre-bid; (b) obtain the LTA's assessment of ground risk based on available survey data; (c) review the EPC contract to confirm that ground risk is passed through to the EPC contractor (or priced into the lump sum); (d) confirm that the financial model includes a geotechnical contingency; (e) note that unlike the DGCL project (which was a relatively defined site), the Sports Boulevard development covers a much larger linear footprint, potentially increasing ground risk exposure. The explicit statement of risk allocation provides clarity (which is positive) but confirms that the Provider has no recourse to the Client for unforeseen ground conditions.

The utilities risk allocation has been restructured. The SBF CA includes a new Clause 7.4 addressing Utilities Infrastructure allocation — the Client is responsible for procuring utility connections to the site boundary, but the Provider bears the risk and cost of all on-site utility infrastructure from the connection points. The Client's obligation is to use reasonable endeavours (not an absolute obligation) to procure utility connections by specified dates. Failure to deliver utilities on time may constitute a Compensation Event (subject to the Compensation Event regime) but is not an absolute Client obligation. Electricity and TSE (Treated Sewage Effluent) remain pass-through costs under the Consumption Charge, but the Provider bears the risk of on-site distribution losses.

The 'reasonable endeavours' standard for Client utility procurement is weaker than an absolute obligation. Lenders should: (a) review the Compensation Event provisions to confirm that utility delay provides adequate schedule and cost relief; (b) confirm that the financial model includes contingency for on-site utility infrastructure costs; (c) consider whether utility connection should be a Condition Precedent to Financial Close (or at least to construction commencement); (d) assess the risk of TSE supply interruption — if TSE is unavailable, the Provider must source potable water at higher cost, and the pass-through mechanism may not fully cover this differential. The DGCL CA had a similar structure but the explicit Clause 7.4 allocation adds clarity (which is positive) while confirming that on-site risk sits with the Provider.

The Provider's construction obligations are broadly similar to the DGCL CA — the Provider must design, construct, test, and commission the District Cooling System in accordance with the Technical Specifications (Schedule 3) and achieve COD by the Target COD. The Provider is free to subcontract to an EPC contractor but remains fully liable for all construction obligations. The SBF CA adds more detail on the Provider's obligation to coordinate with other contractors working on the Sports Boulevard Development, reflecting the mega-project context.

The coordination obligation with other development contractors is a practical concern. Lenders should: (a) review the EPC contract to confirm it is lump-sum, fixed-price, date-certain with adequate delay and performance LDs; (b) confirm that the EPC contractor accepts the coordination obligation with other development contractors; (c) review the interface risk allocation — who bears the risk if other development contractors delay or damage the district cooling works?; (d) confirm that interface delays are Compensation Events under the CA; (e) obtain LTA confirmation on the adequacy of the Technical Specifications.

Under the SBF CA, if the Provider fails to achieve COD by the Target COD, it must first provide Temporary Facilities to supply cooling to connected buildings before delay LDs commence. This is a new preliminary step not present in the DGCL CA. The Provider bears the cost of Temporary Facilities. Delay LDs apply only after the Temporary Facilities obligation is triggered. The Long Stop Date remains the backstop for termination. The quantum and cap of delay LDs should be confirmed against the financial model.

The Temporary Facilities requirement creates an additional cost exposure for the Provider during delay periods. Lenders should: (a) confirm that the financial model includes a contingency for Temporary Facilities costs; (b) verify that delay LDs commence from the correct trigger date and are adequate to cover debt service during the delay period; (c) confirm that the Long Stop Date provides sufficient runway for the step-in and cure process under the Direct Agreement; (d) obtain LTA confirmation on the feasibility and cost of typical temporary cooling solutions. The priority given to maintaining cooling supply (via Temporary Facilities) before financial penalties (LDs) reflects a practical focus on service continuity but delays the financial remedy available to the Client.

The delay LD regime has been restructured. The DGCL CA provided for delay LDs commencing from the Target COD with a cap at a specified percentage of the Contract Price. The SBF CA maintains delay LDs but with a different trigger (after Temporary Facilities obligation) and potentially different quantum and cap. The specific LD rates and cap should be confirmed against the financial model. The Long Stop Date (after which the Client may terminate for prolonged delay) remains the ultimate backstop.

Lenders should: (a) confirm the delay LD rate is adequate to cover debt service during the delay period — if the LD rate is below debt service, lenders face a funding gap during delay; (b) review the LD cap to ensure it provides sufficient runway before the Long Stop Date; (c) confirm that the gap between LD commencement and Long Stop Date provides at least the 90-day step-in period required under the Direct Agreement; (d) verify that delay LDs are payable in cash (not as credit notes or deductions from future charges); (e) note the Temporary Facilities cost that precedes LD commencement — the total delay cost to the Provider is Temporary Facilities cost plus LDs, which should be stress-tested in the financial model.

The deemed completion mechanism in the SBF CA has been restructured. Where a building fails to connect by the Target COD due to the Building Owner's fault (not the Provider's), the Provider may achieve COD without that building. However, unlike the DGCL precedent, the SBF CA does not provide for a capacity charge on deemed COD for non-anchor buildings. The Provider achieves COD and begins earning on connected buildings only. Buildings that later connect trigger separate commissioning milestones. This removes the revenue protection that deemed completion provided in the DGCL structure.

This is a material change from the DGCL precedent where deemed completion triggered capacity charge entitlement even for unconnected buildings. Lenders should: (a) confirm that the financial model reflects revenue only from actually connected buildings at COD; (b) assess the risk that key buildings delay connection, reducing initial revenue below debt service requirements; (c) consider whether a minimum revenue guarantee or liquidity reserve should be sized to cover the gap between connected and total planned capacity at COD. The removal of deemed completion revenue protection shifts construction coordination risk more squarely onto the Provider.

The COD testing regime specifies the performance standards that the District Cooling System must meet to achieve Commercial Operation Date. The SBF CA maintains the general approach (capacity tests, efficiency tests, reliability run) but the specific thresholds and testing protocols may differ from the DGCL CA. The LTA should review the testing specifications in detail. COD cannot be achieved until the system demonstrates it can deliver the required cooling capacity at the required efficiency to all connected buildings (subject to deemed completion provisions for non-connected buildings — see Issue 7).

Lenders should: (a) obtain LTA review of the COD testing specifications to confirm they are achievable and appropriate for the technology; (b) confirm that the testing regime is consistent with the equipment warranties and manufacturer specifications; (c) review the re-testing provisions in case of initial test failure; (d) confirm that the EPC contractor's performance obligations are aligned with the CA's COD testing requirements; (e) verify that partial COD (achieving COD for some buildings but not all) is permitted and how revenue commences in that scenario.

The Provider's O&M obligations have been enhanced compared to the DGCL CA. The SBF CA includes more detailed reporting requirements, stricter maintenance standards, and explicit obligations regarding spare parts inventory, planned maintenance scheduling, and staff qualification requirements. The Emergency Response Plan (see Issue 10) is part of the O&M framework. The Local Content requirements (see Issue 24) also apply to the O&M phase, creating an additional compliance overlay.

The enhanced O&M requirements reflect the trend toward more prescriptive operating standards in GCC PPP concessions. Lenders should: (a) confirm that the O&M contractor's obligations under the O&M agreement are back-to-back with the CA's O&M requirements; (b) verify that the O&M budget in the financial model is adequate for the enhanced requirements; (c) review the reporting obligations to ensure they are manageable and do not create excessive administrative burden; (d) confirm that staff qualification requirements can be met given the Saudi labor market and the Local Content constraints; (e) ensure the O&M reserve account is sized to cover the enhanced requirements.

The lifecycle maintenance provisions have been updated. The SBF CA requires a Lifecycle Maintenance Plan to be prepared and updated periodically, with major maintenance activities scheduled over the 25-year concession term. The financial model must include a Major Maintenance Reserve Account (MMRA) sized to cover anticipated lifecycle costs. The interaction between the Lifecycle Maintenance Plan, the MMRA, and the Transfer Bond/Transfer Retention Fund (see Issue 27) means that later-year cash flow is significantly encumbered.

Lenders should: (a) obtain LTA review of the Lifecycle Maintenance Plan and cost estimates; (b) confirm the MMRA is appropriately sized and replenished; (c) review the interaction between the MMRA, the Transfer Retention Fund, and the distribution lock-up triggers — multiple later-year cash reserves can create cash flow stress; (d) confirm that the lifecycle assumptions in the financial model are consistent with equipment manufacturer recommendations and industry benchmarks for district cooling systems in the GCC climate.

The CSA (Cooling Services Agreement) structure is maintained — individual CSAs are entered between the Provider and each building owner for the supply of chilled water. The SBF CA contemplates that building owners may change over time as buildings in the Sports Boulevard Development are sold, creating counterparty fragmentation risk. Unlike the DGCL project (where DGCL/PIF was expected to remain the owner of most buildings), the SBF project may have numerous third-party building owners, each with varying creditworthiness. The new Transferee Building Owner Non-Payment termination right (Issue 13) partially addresses this risk.

Counterparty fragmentation is a material long-term risk. Lenders should: (a) map the expected building ownership profile — how many buildings, who are the likely owners, what is the timeline for sales?; (b) consider whether SBDC should provide a residual guarantee for CSA payments by Transferee Building Owners; (c) review the CSA form to confirm it includes adequate credit protection provisions (payment terms, security deposits, disconnection rights); (d) assess whether a credit wrap or insurance product could mitigate the counterparty fragmentation risk; (e) confirm that the Provider's disconnection rights under the CSA do not trigger adverse consequences under the CA (e.g., IOS Deductions for disconnected buildings).

The IOS regime is substantially similar in structure to the DGCL precedent — Capacity Charge deductions are calculated hourly based on undelivered capacity during Interruptions of Service. However, the KPI failure thresholds that trigger escalation and ultimately Provider Default have been significantly tightened: the SBF CA uses 30/60 failures (30 KPI failures in any rolling 12-month period triggers a warning, 60 triggers default) versus 50/90 in the DGCL CA. The KPI metrics themselves cover electrical efficiency, TSE efficiency, chilled water delivery temperature, discharge temperature limits, and sensor calibration. A new Emergency Response Plan requirement (Clause 14.2) has been added.

The tightened KPI thresholds (30/60 vs 50/90) represent a materially more aggressive performance regime. Lenders should: (a) obtain LTA confirmation that the 30/60 thresholds are achievable under normal operating conditions with appropriate maintenance; (b) stress-test the financial model for IOS Deductions at various failure scenarios; (c) review whether the KPI metrics are measured automatically (SCADA/BMS) or manually, and who controls the measurement systems; (d) confirm that the Emergency Response Plan requirements are operationally feasible; (e) consider whether an O&M reserve should be sized to cover potential IOS Deductions. The lower thresholds mean the Provider has significantly less margin for operational issues before facing default consequences.

The Provider must prepare and maintain an Emergency Response Plan covering responses to critical system failures, natural disasters, and security incidents affecting the District Cooling System. This plan must be approved by the Client and updated periodically. Non-compliance with the approved plan during an emergency may constitute a breach. This requirement did not exist in the DGCL CA.

The Emergency Response Plan is a reasonable operational requirement for critical infrastructure. Lenders should: (a) confirm that the requirement is an obligation to have and follow a plan, not a guarantee of outcome; (b) review the approval mechanism to ensure the Client cannot impose unreasonable requirements through the plan approval process; (c) confirm that compliance with the approved plan provides a defense against claims of operational negligence; (d) ensure the plan development cost is included in the financial model.

The two-part tariff structure (Capacity Charge + Consumption Charge) is maintained from the DGCL precedent. Key differences: (a) the Capacity Charge is now applied to Building Allocated Capacity (after Diversity Factor), not ETS Maximum Cooling Capacity; (b) the payment mechanism timing and reconciliation provisions have been updated; (c) the Savings definition has been broadened with clearer pass-through obligations; (d) the interaction between the Capacity Charge and IOS Deductions has been refined. The fundamental structure remains bankable but the revenue quantum is lower due to the Diversity Factor application (see Issue 4).

Lenders should: (a) confirm the Capacity Charge formula in Schedule 5 correctly applies the Diversity Factor; (b) verify that the Consumption Charge is a true pass-through with no margin erosion; (c) review the Savings sharing mechanism and its impact on net revenue; (d) confirm that the payment cycle (monthly invoicing, payment terms) is consistent with debt service timing; (e) review the dispute mechanism for invoiced amounts to ensure revenue is not held up by protracted billing disputes. The broader Savings definition may benefit lenders if operational efficiencies generate shared upside, but the primary concern is that Savings do not become a mechanism for the Client to claw back revenue.

The charge rate adjustment mechanism (indexation) has been updated. The Capacity Charge is indexed to specified inflation and cost indices. The Consumption Charge is a pass-through of actual utility costs. The SBF CA provides for annual indexation review with a process for disputing the adjustment. The specific indices used may differ from the DGCL CA and should be confirmed. The interaction between indexation, Savings sharing, and the Royalty Charge should be reviewed to ensure net revenue remains adequate for debt service.

Lenders should: (a) confirm the indexation formula and the specific indices used; (b) verify that the indices are published, reliable, and not subject to government manipulation; (c) confirm that indexation covers all relevant cost components (labor, equipment, energy); (d) review the lag between cost increases and charge rate adjustments — if there is a material lag, the Provider may experience temporary margin compression; (e) stress-test the financial model for scenarios where inflation exceeds indexation.

The invoicing and payment provisions include an updated dispute mechanism. The Client must pay undisputed amounts within the specified payment period but may withhold disputed amounts pending resolution. The dispute resolution for invoicing follows the general dispute provisions (expert determination for quantum, arbitration for other issues). The SBF CA appears to permit the Client to withhold larger portions of invoiced amounts pending dispute resolution compared to the DGCL CA, where the 'pay now, argue later' principle was more clearly established.

The ability to withhold disputed amounts is a significant concern for debt service. If the Client disputes a material portion of an invoice, the Provider's cash flow could be insufficient to cover debt service. Lenders should: (a) confirm the specific withholding limits and whether there is a floor on amounts that must be paid regardless of dispute; (b) review whether interest accrues on wrongfully withheld amounts; (c) confirm that the debt service reserve is sized to cover potential payment disruptions from invoice disputes; (d) consider whether an escrow mechanism for disputed amounts (paid into escrow, released upon resolution) would be appropriate; (e) review the speed of the expert determination process for quantum disputes.

The Savings definition has been broadened in the SBF CA to capture a wider range of cost efficiencies and operational improvements. The pass-through obligations have been clarified: where the Provider achieves Savings (cost reductions below the assumed levels in the financial model), these are shared with the Client according to a specified ratio. The SBF CA is more prescriptive about what constitutes Savings and how they are calculated, compared to the DGCL CA which had a more general definition.

The broader Savings definition cuts both ways. If the Provider achieves genuine operational efficiencies, the obligation to share them with the Client reduces the Provider's (and lenders') benefit from those efficiencies. However, if the sharing obligation is well-structured, it can align interests and incentivize both parties to pursue cost reductions. Lenders should: (a) confirm that the Savings sharing formula does not erode the Provider's net revenue below debt service coverage requirements; (b) verify that Savings are calculated after debt service, not before; (c) review whether the Savings sharing obligation is relevant only for pass-through costs (where it is equitable) or extends to the Provider's own cost reductions (where it may be adverse); (d) confirm that the Savings calculation methodology is clear and verifiable.

Clause 17.10 introduces a carbon credits sharing mechanism. Any carbon credits, carbon offsets, or equivalent environmental instruments generated by the District Cooling System through its operational efficiency are to be shared equally (50/50) between the Client and the Provider. This includes any future carbon trading or offset scheme that may be implemented in Saudi Arabia. This provision did not exist in the DGCL CA.

Carbon credits represent potential future upside revenue. Saudi Arabia has signaled its intention to develop a carbon market as part of Vision 2030 and the Saudi Green Initiative. However, no mandatory carbon trading scheme currently exists in the Kingdom. Lenders should: (a) not include carbon credit revenue in the base case financial model given the uncertainty; (b) treat any future carbon revenue as upside; (c) confirm that the Provider's 50% share is available for debt service (i.e., not subject to any distribution lock-up carve-out); (d) review the definition to ensure it captures all relevant environmental instruments, not just 'carbon credits' narrowly defined; (e) consider whether the 50/50 split is market-standard for Saudi PPP concessions.

The SBF CA introduces a Royalty Charge payable by the Provider to the Client at a rate of SAR 31 per Refrigeration Ton for all capacity above 38,000 RT. This is triggered if and when the system expands beyond the 38,000 RT threshold. The charge is payable annually and indexed. This provision did not exist in the DGCL CA and represents a revenue-sharing mechanism for system growth beyond a specified threshold.

The Royalty Charge is a new cost item that reduces the Provider's (and therefore lenders') benefit from expansion. However, it only triggers above 38,000 RT — well above the Initial Stage capacity of 23,499 RT. If Expansion Stages are achieved, this becomes relevant. Lenders should: (a) confirm that the financial model includes the Royalty Charge in any expansion scenarios; (b) note that the 38,000 RT threshold means this is unlikely to affect the Initial Stage (base case) economics; (c) verify the indexation mechanism to ensure the charge does not escalate faster than revenue; (d) confirm that the Royalty Charge is subordinated to debt service in the payment waterfall; (e) assess whether the Royalty Charge makes expansion stages economically viable for the Provider — if the combined effect of expansion CapEx plus Royalty Charge exceeds the incremental revenue, expansion may not be financeable.

General Changes in Law (those not classified as Political Risk Events) continue to be a shared risk between the Client and the Provider, consistent with the DGCL CA. The key change is the baseline date: the SBF CA uses the Bid Submission Date rather than the Effective Date. This means any general change in law occurring between bid submission and CA execution is the Provider's risk. The relief mechanism remains the same: if a General Change in Law increases the Provider's costs or decreases revenue, the Provider is entitled to relief through the charge rate adjustment mechanism, subject to a materiality threshold and a sharing mechanism (typically 50/50 or with a first-loss tranche for the Provider).

Lenders should: (a) confirm the Bid Submission Date and calculate the gap to the expected Effective Date; (b) conduct a regulatory horizon scan for any pending or anticipated legislation that could affect the project during this gap; (c) confirm the materiality threshold — if it is set too high, minor changes in law could accumulate without triggering relief; (d) review the charge rate adjustment mechanism to ensure it provides real compensation (not just tariff adjustments that may be insufficient); (e) note that Saudi Arabia's regulatory environment is evolving rapidly under Vision 2030, and changes in law (particularly in areas like employment, environment, and taxation) are more likely than in more stable regulatory environments.

Schedule 19 sets out the shareholding restrictions for the Project Company. The SBF CA maintains lock-in provisions restricting changes to the SPV's ownership during the construction period and for a specified period after COD. The change-of-control provisions are broadly similar to the DGCL CA but with some refinements: (a) the lock-in period may differ; (b) the definition of 'change of control' has been updated; (c) the permitted transferee provisions have been clarified. Post-lock-in, transfers are permitted subject to Client consent and compliance with specified requirements (experience, financial standing).

Lenders should: (a) confirm the lock-in period aligns with the financing documents' own change-of-control provisions; (b) verify that the CA's change-of-control definition is at least as broad as the financing documents' definition (otherwise there could be a gap where a change triggers an event of default under the facilities but is permitted under the CA); (c) confirm that the Direct Agreement requires lender consent to any change of control; (d) review whether the permitted transferee provisions are consistent with the financing documents' requirements for replacement sponsors.

The Force Majeure regime has been modified in three key respects: (a) the notice period has been extended from 10 Business Days (DGCL) to 15 Business Days (SBF) — the affected party must notify the other within 15 Business Days of becoming aware of the FM event; (b) a new post-COD Force Majeure Term extension mechanism has been added, allowing the concession term to be extended by the duration of the FM event (subject to conditions); (c) the reinstatement regime has been restructured with a Restoration Account and Reinstatement Shortfall concept.

The extended notice period (15 vs 10 Business Days) is a minor administrative change but should be reflected in the Direct Agreement provisions. The post-COD FM Term extension is positive for lenders as it preserves revenue-earning capacity that would otherwise be lost to FM events. The Restoration Account mechanism is important — it ring-fences insurance proceeds and FM compensation for reinstatement rather than allowing them to be swept for other purposes. Lenders should: (a) confirm the Restoration Account is controlled by the Security Agent or subject to security; (b) review the Reinstatement Shortfall concept — if the cost of reinstatement exceeds insurance proceeds plus FM compensation, who bears the shortfall?; (c) ensure the Direct Agreement reflects the 15 Business Day notice period; (d) confirm that the FM Term extension does not affect the date of any financing maturity.

The Force Majeure notice period has been extended from 10 Business Days (DGCL) to 15 Business Days (SBF). The affected party must notify the other party within 15 Business Days of becoming aware of the FM event and its likely impact. Failure to give timely notice may result in loss of FM relief for the period of the delay. This change applies to both Natural FM and Political Risk Events.

The 5 Business Day extension is a minor administrative change. However, lenders should: (a) ensure the Direct Agreement reflects the updated 15 Business Day notice period; (b) confirm that the Security Agent has parallel notification rights; (c) note that longer notice periods can be beneficial (more time to assess the situation) but can also delay the commencement of FM relief. The practical impact is minimal given that FM events are typically obvious and well-documented.

The distinction between Political Risk Events and Natural Force Majeure Events is maintained from the DGCL CA. Political Risk Events (government actions, discriminatory legislation, expropriation, sanctions affecting the project specifically) remain Client risk with full compensation. Natural Force Majeure (earthquakes, floods, epidemics) remains a shared risk with specified relief but no full compensation. The categorization of events between the two categories appears substantially unchanged, though the specific definitions should be compared in detail.

The political risk allocation is critical for Saudi projects and appears satisfactory. Lenders should: (a) confirm that the definition of Political Risk Event captures all relevant scenarios including Saudi-specific risks (sanctions, regulatory actions by specific Saudi government entities, changes in the KSA's relationship with international bodies); (b) verify that Political Risk Event termination compensation (Termination Price C) provides full Senior Creditor Claims recovery; (c) consider whether political risk insurance should be required as a CP; (d) note that the SBF is itself a government entity — confirm that actions by SBF that would constitute a Political Risk Event are not carved out through any 'self-dealing' exclusion.

The SBF CA introduces a Restoration Account mechanism for Force Majeure reinstatement. Following a Force Majeure event that damages the District Cooling System, insurance proceeds and any FM compensation are paid into a dedicated Restoration Account. These funds must be applied exclusively to reinstating the system. A Reinstatement Shortfall arises if the cost of reinstatement exceeds the available funds in the Restoration Account. The CA specifies how Reinstatement Shortfalls are allocated between the parties depending on whether the FM event is a Natural FM or Political Risk Event. This structured approach did not exist in the DGCL CA.

The Restoration Account is positive from a lender perspective as it ring-fences reinstatement funds and prevents them being swept for debt service or distributions. Lenders should: (a) confirm the Restoration Account is subject to the security package (pledged to the Security Agent); (b) review the Reinstatement Shortfall allocation — for Natural FM, the Provider typically bears some share; for Political Risk, the Client should bear the shortfall; (c) confirm that the Restoration Account mechanism does not conflict with the insurance proceeds waterfall in the financing documents; (d) consider whether the Security Agent should have a consent right over disbursements from the Restoration Account; (e) review the timeline for reinstatement — if reinstatement is not economically viable, the parties should have a termination option rather than indefinite commitment to an unviable rebuild.

The SBF CA introduces a post-COD Force Majeure Term extension mechanism. If an FM event occurs during the operations phase and causes a specified period of interruption, the concession term may be extended by the duration of the interruption. This preserves the Provider's revenue-earning period that would otherwise be lost to the FM event. This provision did not exist in the DGCL CA, where FM during operations simply resulted in lost revenue (subject to BI insurance).

This is a positive provision for the Provider and lenders. It means that FM events during operations do not permanently erode the revenue base — the lost period is added to the end of the concession. Lenders should: (a) confirm that the term extension is automatic (upon meeting conditions) rather than subject to Client consent; (b) verify that the extended term does not conflict with the head lease term (the sublease must also be capable of extension); (c) assess the impact on the financing maturity profile — if the concession term extends, should the financing also contemplate extension?; (d) confirm that the term extension applies to both Natural FM and Political Risk Events.

The insurance regime has been updated: (a) the Insurance Authority replaces SAMA (Saudi Arabian Monetary Authority) as the insurance regulator reference throughout the CA — this reflects the actual regulatory change in Saudi Arabia where insurance regulation moved to the Insurance Authority; (b) certain coverage periods have been adjusted; (c) the requirement for insurance to be placed with Saudi-licensed insurers remains. The fundamental insurance structure (CAR/EAR during construction, property all risks + business interruption during operations, third-party liability throughout) is maintained.

The regulatory change (Insurance Authority vs SAMA) is a factual update and does not change the substance of the insurance requirements. Lenders should: (a) confirm that the insurance program required under Schedule 15 meets the minimum standards set out in the financing documents' insurance provisions; (b) verify that all required coverages are available in the Saudi insurance market at reasonable premiums; (c) confirm that the Security Agent is named as loss payee/additional insured as required; (d) review any changes to coverage periods to ensure they align with the construction and operations schedule; (e) obtain LIA (Lenders' Insurance Advisor) sign-off on the insurance program before Financial Close. The SBF CA insurance provisions should be mapped against the LIA's requirements letter to identify any gaps.

The security package must include assignment/pledge of the Provider's interest under the CA, including the sublease interest. Saudi Arabian law has historically been restrictive on the pledge of leasehold/subleasehold interests. Recent reforms (including the Real Estate Registration Law and the Civil Transactions Law) have improved the position, but the pledgeability of a sublease interest in the context of a BOOT concession on Crown land should be confirmed by Saudi legal counsel. This issue is more acute than in the DGCL CA due to the sublease (vs lease) structure.

Lenders should: (a) obtain a comprehensive Saudi law legal opinion on the pledgeability of the sublease interest, the CA revenues, and the Provider's moveable and immoveable assets on the Site; (b) confirm that the Direct Agreement provides adequate substitute remedies if the sublease pledge is not enforceable; (c) review whether a step-in and novation right (which effectively replaces a pledge) provides equivalent protection; (d) consider whether the security package should include assignment of insurance proceeds, CSA revenues, and other contractual rights as additional security. The enforceability of security in Saudi Arabia continues to evolve and current legal advice is essential.

RETT Events (Real Estate Transfer Tax or equivalent property transfer levies imposed by the General Authority of Zakat and Tax or successor body) are now expressly classified as a Compensation Event. This means that if RETT is imposed on the Provider in connection with the concession (e.g., on the land sublease, on transfer of assets at expiry), the Provider is entitled to compensation through the Compensation Event mechanism — either schedule relief, cost recovery through the charge rate adjustment, or a combination. This provision did not exist in the DGCL CA.

The inclusion of RETT as a Compensation Event is positive for the Provider and lenders. Saudi Arabia introduced RETT in October 2020 at 5% on real estate transactions, and its application to PPP/concession structures has been uncertain. This provision provides contractual certainty that RETT costs, if applicable, will be compensated. Lenders should: (a) confirm the scope — does it cover only RETT on the initial sublease/concession grant, or also RETT on the end-of-term transfer back to the Client?; (b) verify that the Compensation Event relief is adequate to cover the full RETT liability (5% of property value can be a significant sum for district cooling infrastructure); (c) consider whether RETT risk should also be addressed in the lease/sublease provisions.

The Compensation Event regime maintains the same general structure as the DGCL CA but with notable changes: (a) Change in Law baseline has been moved from the Effective Date to the Bid Submission Date — this means any change in law occurring between bid submission and the Effective Date (signing) is already priced into the Provider's bid, shifting this risk to the Provider; (b) RETT Events (Royal Estate Transfer Tax or equivalent property transfer levies) are now expressly included as a Compensation Event with a specific relief mechanism; (c) the distinction between General Change in Law and Political Risk Event Change in Law is maintained, with the same allocation principle (General = shared risk, Political = Client risk).

The Bid Submission Date baseline for Change in Law is adverse for the Provider — it extends the period during which the Provider bears change-in-law risk without compensation. Depending on the gap between bid submission and Financial Close, this could be a significant exposure (in Saudi infrastructure projects, this gap can be 12-24 months). Lenders should: (a) confirm the Bid Submission Date and assess the gap to Financial Close; (b) identify any known or anticipated changes in law during this gap period; (c) confirm that the financial model's change-in-law contingency reflects this extended exposure; (d) review the RETT Event provisions carefully — the inclusion as a Compensation Event is positive, but the specific relief mechanism should be confirmed to cover actual costs; (e) confirm that the General vs Political Risk Event distinction is clear and that the Financing Documents' political risk insurance (if any) aligns with these categories.

The Provider Default triggers have been updated. In addition to the standard grounds (material breach, insolvency, abandonment, failure to maintain insurance), the SBF CA includes the tightened KPI thresholds (60 failures vs 90 in DGCL — see Issue 9) and adds Local Content LD default as a trigger. Persistent failure to meet local content targets, evidenced by the accumulation of local content LDs beyond a specified cap, constitutes a Provider Default. This creates a new category of non-operational default that could be triggered by procurement and employment decisions rather than technical performance.

The combination of tighter KPI thresholds and the new local content default trigger materially increases the Provider Default risk profile compared to DGCL. Lenders should: (a) model the probability of reaching the KPI failure threshold under various operational scenarios; (b) review the local content LD cap and assess the realistic risk of exceeding it; (c) confirm that the Direct Agreement step-in and cure provisions apply to both KPI and local content defaults; (d) consider whether local content failure should be curable (with a cure plan) rather than a hard default; (e) assess whether the local content targets can realistically be achieved — if the targets are aspirational rather than practical, the LD exposure could be significant.

The termination regime has been materially restructured from the DGCL precedent in several respects: (a) Voluntary Termination by Client has been removed entirely — the Client can only terminate for Provider Default, prolonged Force Majeure, or the new Transferee Building Owner Non-Payment ground; (b) the termination payment formulae have been changed — Termination Price A (Provider Default) now floors at Senior Creditor Claims, Termination Price B (Client Default) uses actual IRR instead of a fixed 8% for the equity component, and Termination Price C (Political Risk) uses 50% of IRR instead of a fixed 4%; (c) Reimbursement Costs have been narrowed — CSA termination proceeds are no longer included; (d) a new Transferee Building Owner Non-Payment termination event has been added (Clause 22.9).

The changes to the termination regime are mixed from a bankability perspective. Positive changes: the Senior Creditor Claims floor on Termination Price A is a significant improvement, ensuring that even in a Provider Default scenario, senior debt is protected at the outstanding amount level; the removal of CSA termination proceeds from Reimbursement Costs is also positive as it removes a deduction from compensation. Negative/uncertain changes: the shift from fixed percentages (8%/4%) to IRR-based calculations for equity components introduces variability — if the actual IRR is below 8%, Termination Price B will be lower than under the DGCL formula; the removal of Voluntary Termination removes a 'put option' that provided an exit route for the Client (and corresponding compensation for the Provider). Lenders should: (a) confirm the Senior Creditor Claims definition covers all senior secured obligations; (b) model termination payment scenarios at various IRR levels; (c) review the Direct Agreement step-in and cure provisions for consistency with the amended termination regime; (d) assess the new Transferee Building Owner Non-Payment ground carefully (see Issue 13).

Termination for prolonged Force Majeure is maintained. If an FM event continues for a specified period (typically 12–18 months), either party may terminate the CA. The termination compensation depends on the type of FM: Political Risk Event FM triggers Termination Price C (full compensation with SCC + political risk equity component), while Natural FM triggers a lower compensation (SCC + a reduced equity component). The SBF CA maintains this distinction but with the updated compensation formulae (IRR-based equity calculations — see Issues 15 and 16). The post-COD FM Term extension (Issue 57) may reduce the likelihood of prolonged FM termination by providing an alternative remedy.

The prolonged FM termination provisions are consistent with market practice. The interaction with the post-COD FM Term extension should be reviewed — does the term extension apply before the prolonged FM termination right is triggered (i.e., does the clock for prolonged FM termination toll while the term extension mechanism is being applied)? Lenders should confirm that: (a) the prolonged FM period is adequate (12 months minimum); (b) the termination compensation is at least SCC in all FM scenarios; (c) the Direct Agreement provides lenders with adequate notice and cure rights before prolonged FM termination.

Client Default triggers have been updated to include failure by SBDC to procure the required guarantee under Clause 26.6 (if it ceases to be government-owned) within the 60 Business Day period. This is a new ground. The standard Client Default triggers (failure to pay for extended periods, material breach, insolvency) are maintained. Notably, there is no Client Default for failure to provide Payment Security (because no Payment Security obligation exists).

The new guarantee-failure Client Default is a useful backstop. Lenders should: (a) confirm the Client Default definition includes all standard grounds plus the new guarantee-failure ground; (b) review the cure periods for Client payment defaults — these should be short enough to prevent material cash flow deterioration; (c) confirm that Client Default triggers Termination Price B (full compensation) or Termination Price C depending on the ground; (d) note the asymmetry — the Provider has numerous default triggers while the Client's defaults are limited to egregious failures.

The DGCL CA included a Voluntary Termination right for the Client (Clause 22.6), which allowed the Client to terminate the CA at any time on notice, subject to payment of full compensation (Termination Price B). This provision has been entirely removed from the SBF CA. The Client can only terminate for specific cause (Provider Default), prolonged Force Majeure, or the new Transferee Building Owner Non-Payment ground.

The removal of Voluntary Termination is double-edged. On one hand, Voluntary Termination with full compensation was effectively a 'put option' — the Client could buy out the concession, and the Provider/lenders would receive Termination Price B (which included full debt recovery plus equity compensation at 8%/IRR). This was a backstop that guaranteed exit at fair value. On the other hand, the removal means the Client cannot unilaterally end the concession, providing greater concession-term certainty. Lenders should consider: (a) whether the remaining termination grounds provide adequate protection; (b) the loss of the 'put option' value in downside scenarios where the project is underperforming and an early exit at Termination Price B would be attractive; (c) whether the Client's motivation to remove this right reflects concerns about the cost of the buyout option.

Clause 22.9 introduces an entirely new termination right for the Provider: if a Transferee Building Owner (a building owner who has taken over cooling obligations from the Client or SBF under a CSA) fails to make payments to the Provider for a specified period, the Provider may terminate that building's cooling service and, in certain circumstances, terminate the CA. This right did not exist in the DGCL CA. The provision recognizes that as the Sports Boulevard development matures, individual buildings may be sold to third-party owners who become the Provider's direct counterparty for cooling charges. If these third-party building owners default on payment, the Provider has a contractual remedy.

This is a positive provision for the Provider and lenders as it addresses the counterparty fragmentation risk inherent in a district cooling concession. However, lenders should: (a) review the notice periods and cure rights carefully — the Transferee Building Owner should have adequate opportunity to cure before termination; (b) confirm that the Direct Agreement provides lenders with step-in rights before this termination right is exercised; (c) assess whether a single building owner non-payment can trigger CA termination (which would be disproportionate) or only disconnection of that building; (d) review the financial model impact of losing individual buildings from the connected base; (e) confirm that the Client/SBDC retains residual payment liability for buildings transferred to defaulting Transferee Building Owners.

Reimbursement Costs (which are deducted from certain Termination Prices) have been narrowed in the SBF CA compared to the DGCL CA. Specifically, CSA termination proceeds are no longer included as a Reimbursement Cost. Under the DGCL CA, if the Provider received termination payments from building owners under the CSAs upon CA termination, these were deducted from the Termination Price. This deduction has been removed in the SBF CA.

This is a positive change for the Provider and lenders. The removal of CSA termination proceeds from Reimbursement Costs means the Termination Price is higher (less deductions). Lenders should: (a) confirm this interpretation by reviewing the Reimbursement Costs definition in full; (b) verify that no other deductions have been added that offset this benefit; (c) confirm the net effect on Termination Price calculations across all termination scenarios.

The Handback Requirements have been made more specific than the DGCL CA. The system must be delivered at end of term in a condition capable of operating for a specified further period (typically 5–10 years of useful life remaining). Specific equipment condition criteria, documentation requirements, and spare parts inventory obligations are detailed in Schedule 17. The Transfer Survey (3 years before expiry), Transfer Bond, and Transfer Retention Fund (see Issue 27) provide the enforcement mechanism.

Enhanced Handback Requirements are generally positive as they incentivize proper maintenance throughout the concession. However, they create significant later-year financial obligations. Lenders should: (a) confirm that the Handback Requirements are technically defined and objectively measurable (not subjective assessments); (b) obtain LTA assessment of the typical remediation cost to meet Handback Requirements for a 25-year-old district cooling system; (c) review whether the Transfer Bond and Retention Fund are sized to cover this cost; (d) ensure the later-year financial obligations do not compromise debt service; (e) consider whether the financing should fully amortize before the Transfer Retention Fund deposits commence.

The end-of-term handback regime has been significantly enhanced compared to the DGCL CA. New provisions include: (a) a Transfer Survey to be conducted during the final 3 years of the concession to assess the condition of the District Cooling System against the Handback Requirements; (b) a Transfer Bond, which the Provider must procure to secure its obligation to deliver the system in the required condition at expiry; (c) a Transfer Retention Fund, into which the Provider must make periodic deposits during the final years of the concession, which can be drawn by the Client to fund remediation works if the system does not meet Handback Requirements at transfer. These mechanisms did not exist in the DGCL CA, which had only a general handback obligation.

The Transfer Bond and Transfer Retention Fund represent new financial obligations that must be factored into the financial model. Lenders should: (a) confirm the quantum and timing of Transfer Bond costs and Retention Fund deposits; (b) ensure these obligations are reflected in the financial model's later-year cash flows; (c) review whether the Transfer Bond and Retention Fund requirements affect the debt maturity profile (i.e., should debt be fully repaid before these obligations commence?); (d) consider whether the Transfer Retention Fund deposits should be senior to equity distributions in the payment waterfall; (e) confirm that the Handback Requirements (Schedule 17) are technically defined and measurable, not subjective; (f) obtain LTA assessment of the likely remediation cost at end of term to gauge adequacy of the bond/fund.

The dispute resolution mechanism remains SCCA (Saudi Center for Commercial Arbitration) arbitration, consistent with the DGCL CA. The SBF CA maintains Saudi Arabian law as the governing law. Minor procedural updates have been made to the expert determination provisions for technical disputes, but the fundamental structure (negotiation → expert determination for technical matters → SCCA arbitration for all other disputes) is unchanged.

The continuation of SCCA arbitration is expected and appropriate. Lenders should: (a) confirm that the SCCA arbitration provisions are compatible with the dispute resolution provisions in the financing documents (ideally the financing documents should also reference SCCA or provide for London arbitration with Saudi law); (b) review the expert determination provisions for technical disputes — these are often the most common disputes in district cooling concessions (KPI measurement, IOS calculations, capacity testing); (c) confirm that interim/emergency measures are available under the SCCA rules; (d) consider whether the financing documents should include a waiver of sovereign immunity from execution, given SBDC's government-related entity status.

Assignment by the Client is now restricted and requires the assignee to have a credit rating of at least A- (S&P/Fitch) or A3 (Moody's). This is a new requirement not present in the DGCL CA, which permitted assignment subject to Provider consent (not to be unreasonably withheld). The SBF CA also requires that any Client assignment must not adversely affect the Provider's rights under the CA or the Senior Creditors' rights under the Financing Documents. The Provider's consent is still required but the credit rating threshold provides an objective minimum standard.

The credit rating requirement is positive for lenders as it provides a quantifiable floor for counterparty credit quality following assignment. However, lenders should: (a) confirm that the A-/A3 threshold is adequate for the project's risk profile; (b) verify that the 'no adverse effect on Senior Creditors' provision is enforceable and gives the Security Agent standing to object; (c) review whether assignment by operation of law (e.g., government restructuring of SBF entities) is captured or excluded; (d) confirm that the Direct Agreement includes parallel provisions requiring lender consent to Client assignment.

The representations and warranties are broadly similar to the DGCL CA. Notably, there is no Payment Security provided by the Client or any of its affiliates. The Client's payment obligations are unsecured — lenders' sole recourse for non-payment is through the Direct Agreement and the termination compensation regime. This was also the case in the DGCL CA but is more significant here given the different counterparty (SBDC/SBF vs DGCL/PIF).

The absence of Payment Security is the most significant gap in the SBF CA's credit structure from a bankability perspective. In the DGCL transaction, PIF's implicit sovereign backing partially compensated for the lack of formal security. For SBF/SBDC, lenders should: (a) conduct thorough credit due diligence on both entities; (b) consider requiring a parent guarantee from SBF as a minimum; (c) explore whether a standby letter of credit or escrow arrangement could provide payment security; (d) assess whether the government ownership guarantee at Clause 26.6 is sufficient comfort; (e) review the financial model's downside case for a scenario where the Client delays payment — is there adequate liquidity reserve coverage?

Clause 26.6 requires that if SBDC ceases to be wholly owned (directly or indirectly) by a government entity of the Kingdom, it must procure a guarantee from an entity with a credit rating of at least A- (S&P/Fitch) or A3 (Moody's) within 60 Business Days. Failure to do so is a Client Default. This provision did not exist in the DGCL CA.

While this provision offers important protection against privatization or restructuring of the Client entity, it is reactive — the guarantee is only required after the ownership change occurs. Lenders should consider: (a) whether 60 Business Days is an acceptable cure period given the potential gap in credit support; (b) whether the A-/A3 threshold is sufficient given the project's risk profile; (c) whether the guarantee should cover all Client obligations (not just payment) and should be in a form acceptable to the Security Agent; (d) whether a negative pledge or ownership maintenance covenant should be added to the financing documents as an earlier trigger. The Client Default remedy is a strong backstop but relies on the termination regime for enforcement.

The confidentiality provisions have been updated. The SBF CA maintains carve-outs for disclosure to financing parties (lenders, their advisors, rating agencies) consistent with the DGCL CA. The scope of permitted disclosure has been slightly broadened to include disclosure required under financing documents and in connection with enforcement actions. The IP provisions remain similar — the Client receives a license to use the Provider's IP upon termination or expiry to the extent necessary to operate the system.

The confidentiality carve-outs are adequate for financing purposes. Lenders should confirm that: (a) the carve-out extends to all financing parties including hedge counterparties, intercreditor agents, and any political risk insurers; (b) disclosure in connection with secondary trading of the debt is permitted; (c) the IP license on termination is broad enough to allow a replacement operator to operate and maintain the system without dependency on the outgoing Provider.

The CA is governed by the laws of the Kingdom of Saudi Arabia, consistent with the DGCL CA. Sharia compliance considerations apply — the financing structure must comply with Islamic finance principles to the extent required. The SBF CA does not expressly address Islamic finance but the governing law clause means that any Sharia-inconsistent provision could be challenged.

Lenders should: (a) obtain a Sharia compliance opinion on the CA and the financing documents; (b) confirm that the tariff structure (particularly the Capacity Charge) does not raise riba (interest) concerns; (c) review the insurance provisions for takaful requirements; (d) note that Saudi Arabia has been progressively modernizing its legal framework, but Sharia remains a consideration for contract enforcement. The SCCA arbitration venue provides a relatively sophisticated forum for commercial dispute resolution.

Termination Price A (payable on Provider Default termination) now includes a floor at the level of Senior Creditor Claims. Under the DGCL CA, Termination Price A was the lower of Fair Market Value and Outstanding Senior Debt — if FMV was below outstanding debt, lenders could face a shortfall. Under the SBF CA, the payment is the higher of FMV and Senior Creditor Claims (which includes outstanding principal, accrued interest, breakage costs, and hedging termination). This is a significant improvement in lender protection.

This is one of the most important improvements in the SBF CA from a bankability perspective. The SCC floor means that even in the worst-case Provider Default scenario, senior lenders should recover their full outstanding exposure (subject to SBDC's ability to pay). Lenders should: (a) confirm the Senior Creditor Claims definition is comprehensive and includes all amounts that would be owing under the senior facilities (including any RCF, DSR facility, hedging obligations, and costs/expenses); (b) confirm the definition references the actual finance documents and is not a fixed or estimated amount; (c) ensure the Direct Agreement reflects this protection; (d) assess SBDC's capacity to pay SCC in a stress scenario. The effectiveness of this protection depends entirely on SBDC's creditworthiness — a contractual right to SCC is only as good as the obligor's ability to pay.

The Fixed Adjusted Value component of Termination Price B (payable on Client Default, Natural Force Majeure, and certain other non-Provider-fault terminations) previously used a fixed 8% discount rate for the equity component. The SBF CA replaces this with the actual project IRR. This means the equity compensation will vary with the project's actual financial performance rather than being fixed at 8%. If the actual IRR exceeds 8%, the compensation is higher; if below 8%, it is lower.

The shift to actual IRR introduces model dependency into termination compensation. Lenders should: (a) confirm how IRR is calculated and by whom — the definition should reference the base case financial model or a defined calculation methodology; (b) assess the risk that IRR disputes delay termination payment; (c) model termination scenarios at various IRR levels (base case, downside, upside); (d) consider whether the IRR calculation should be subject to independent verification or expert determination in case of dispute. The IRR approach is more theoretically correct (it compensates shareholders at their actual expected return) but introduces complexity and potential for dispute that the fixed 8% avoided.

The Political Event Adjusted Value component of Termination Price C previously used a fixed 4% discount rate for the equity component. The SBF CA replaces this with 50% of the actual project IRR. If the base case IRR is 12%, the discount rate would be 6% (50% × 12%) rather than the fixed 4% under the DGCL CA. This increases the discount rate applied to future equity cash flows, reducing the present value of the equity compensation component.

This change reduces equity compensation on political risk termination relative to the DGCL precedent (assuming IRR > 8%, which is typical for GCC district cooling projects with IRRs typically in the 10-14% range). At a 12% IRR, the discount rate moves from 4% to 6%, reducing equity NPV. Lenders should note that this primarily affects sponsor economics — senior debt recovery should still be at full SCC. However, reduced equity compensation on political risk events may reduce sponsors' appetite to invest, which is an indirect concern for lenders relying on sponsor equity commitments. The political risk protection overall remains robust — the concern is the quantum, not the existence, of compensation.

The Direct Agreement form at Schedule 20 maintains the core lender protection structure from the DGCL precedent: (a) 90-day suspension period following a Provider Default notice, during which lenders can evaluate and prepare step-in; (b) step-in rights allowing the Security Agent (or its nominee) to assume the Provider's obligations; (c) novation rights allowing transfer of the CA to a replacement provider; (d) consultation rights before the Client exercises termination rights. The key changes reflect the updated termination regime — notably, the Senior Creditor Claims floor on Termination Price A should be confirmed in the DA provisions. The 15 Business Day FM notice period (changed from 10) must also be reflected.

The Direct Agreement is the cornerstone of lender protection. Lenders should: (a) confirm the DA is a Condition Precedent to Financial Close and must be executed before first drawdown; (b) verify that the 90-day suspension period is adequate for the step-in evaluation and execution process; (c) confirm that step-in does not constitute a change of control or trigger any adverse consequence under the CA; (d) verify that the novation provisions allow sufficient time and flexibility to find a replacement provider; (e) confirm that the DA references the updated termination compensation provisions (SCC floor, IRR-based calculations); (f) review whether the DA provides adequate cure rights for both financial and operational defaults; (g) confirm the DA survives termination (i.e., the obligation to pay termination compensation to the Security Agent is direct and not dependent on the DA remaining in force post-termination).

Schedule 22 contains the form of CA Novation Agreement, which provides for the novation of the CA from the Consortium Members (who sign the CA) to the Project Company (SPV). This is a new structural step not present in the DGCL CA, where the SPV signed the CA directly. Under the SBF structure, the Consortium Members sign the CA, incorporate the SPV, and then novate the CA to the SPV. The novation must occur before Financial Close. The Client's consent to novation is pre-agreed (in the form at Schedule 22), subject to the SPV meeting specified conditions.

The novation structure is common in Middle Eastern PPP projects and reflects the fact that the SPV typically does not exist at bid stage. However, lenders should: (a) confirm the novation is a Condition Precedent to Financial Close (it must be completed before lenders are committed); (b) review the pre-agreed novation form to ensure it transfers all rights and obligations without amendment; (c) confirm that the Consortium Members provide no residual guarantees post-novation (or if they do, that this is reflected in the security package); (d) verify that the novation does not trigger any adverse consequences under the CA (e.g., is not treated as an assignment requiring consent); (e) ensure the SPV's constitutional documents (memorandum, articles) comply with any CA requirements on the Provider's corporate structure.

Schedule 23 introduces a comprehensive Local Content regime with five parts. The Provider must achieve a 49% local content target for both the construction phase and the O&M phase. Local content is measured by the value of goods, services, and labor sourced from Saudi suppliers and Saudi nationals. Failure to meet the targets triggers liquidated damages, which are calculated as a percentage of the shortfall. The regime includes reporting obligations, audit rights for the Client, and specific categories of expenditure that qualify as 'local.' The five parts cover: (1) definitions and targets, (2) measurement methodology, (3) reporting requirements, (4) LD calculation, and (5) dispute resolution for local content matters.

This is a significant new compliance burden that did not exist in the DGCL CA. The 49% target is ambitious for a district cooling project where critical equipment (chillers, heat exchangers, pumps) is typically imported. Lenders should: (a) obtain LTA confirmation that the 49% target is achievable given the project's equipment and labor requirements; (b) confirm that the financial model includes the cost of compliance (local sourcing premiums, training costs) and a contingency for LD exposure; (c) review the LD calculation to assess maximum exposure; (d) confirm that LDs for local content shortfall do not cascade into Provider Default triggers; (e) review whether the 49% target is measured annually or cumulatively, and whether there is a cure mechanism; (f) assess the impact on EPC and O&M procurement — the EPC contractor and O&M operator must be contractually committed to supporting the local content targets.