What is tail period in project finance?

Answer 1

In project finance, you have the construction period and the operating period.

Let's say your project needs 5 years of construction and can then be operated for 25 years.

The debt associated to the construction is planned to be amortized in, let's say, 15 years. The tail period is the time difference between the end of planned debt amortization and the end of the operating period.

For a bank, the longer the tail period the better. If the project cash flow is not enough to support the amortization in time, the bank has 10 years of tail period to have the debt amortized.