Difference between trust and custody account and trust account*The Trust and Retention Account (TRA) mechanism is a common feature of infrastructure project financing. It aims to protect project lenders from credit risk (debt service default risk) by isolating the project company`s cash flows. This involves transferring control of borrowers` future cash flows (project company) to an independent agent called a TRA agent, duly mandated by the lenders. 2. Infrastructure projects shall be carried out through a separate company set up for that purpose (SPV) and the shares in the SPV would normally be held, inter alia, by the project promoters. The cash flows of the SPV (project company) are subject to a TRA agreement. Thus, the TRA agent acts as a trustee on behalf of the lenders and ensures that the cash flows are strictly accessible to the borrower/project company according to the mandate. Therefore, the tra mechanism could be seen as a sophisticated version of traditional “No Link” accounts on which the bank concerned has not been able to exercise its general right of deposit. 3.

By way of illustration, the mandate of the lenders to the tra agent for the use of cash flows could impose the order of final use of the funds: all the operating and maintenance costs of the project; Monthly contributions/provisions of net resources and interest payments to lenders; a debt service reserve, for example, in the amount of six months` contribution, which could also be covered by a credit to be set up by the promoters of the project company; a cash reserve of four operating costs, for example; Once all of the above obligations have been fulfilled, either by L/C or by project cash, the remaining funds would be available to the project company, if any, at its discretion or to the TRA agent….