Lenders ask for a completion guarantee so someone stands behind the date and the cost. Equity investors should read it with the same care. It is not a promise that the plant will be finished. It is a promise that a named party will pay up to a point if it is not.

Coverage is a list, not a feeling

Cost overruns, interest during a delay, and liquidated damages owed to a buyer may or may not sit inside the guarantee. If the expensive items are outside it, the guarantee decorates the credit package and leaves equity with the bill.

The guarantor is the asset

A guarantee from a holding company with no other assets is a circular claim. Ask what else that company owns, whether the guarantee is several, and what happens if the sponsor is in several projects at once. A guarantee concentrated in one bull market is not a reserve.

Price the guarantee at the cap, from a party that can write the cheque. Anything above the cap is still yours.