This chapter covers the procedures for raising project ﬁnance from private-
sector lenders, in particular commercial banks (cf. §5.1) and bond investors
(cf. §5.2), with a comparison between the two (cf. §5.3).
The ﬁnancing and additional credit support that can be obtained from public-
sector sources, in particular export credit agencies (such as U.S. EximBank) and
multilateral development banks (such as the World Bank) are discussed in Chap-
The nature and roles of the various external advisers used by lenders are also
considered (cf. §5.4).
§5.1 COMMERCIAL BANKS
Most commercial banks in the project ﬁnance ﬁeld have specialist depart-
ments that work on putting project ﬁnance deals together. There are three main
approaches to organizing such departments:
Project ﬁnance department. The longest standing approach is to have a de-
partment purely specializing in project ﬁnance transactions. Larger depart-
ments are divided into industry teams, covering sectors such as energy, in-
frastructure, and telecommunications. Concentrating all the project ﬁnance
expertise in one department ensures an efﬁcient use of resources and good
cross-fertilization, using experience of project ﬁnance for different indus-
tries; however, it may not offer clients the best range of services.
Structured ﬁnance department. As mentioned in §2.4, the divisions between
project ﬁnance and other types of structured ﬁnance are becoming increas-
Working with Lenders
ingly blurred, and therefore project ﬁnance often forms part of a larger struc-
tured ﬁnance operation. Again there may be a division into industry teams.
This approach may offer a more sophisticated range of products, but there is
some danger that project ﬁnance may not ﬁt easily into the operation if other
business is based on a much shorter time horizon.
Industry-based departments. Another approach is to combine all ﬁnancing
for a particular industry sector (e.g., electricity, oil and gas, or infrastructure)
in one department; if this industry makes regular use of project ﬁnance, proj-
ect ﬁnance experts form part of the team. This provides one-stop services
to the bank’s clients in that particular industry, but obviously may dimin-
ish cross-fertilization between project ﬁnance experience and different
In the end good communication and cooperation within the bank are probably
more important than the formal organization.
In general, the project ﬁnance personnel in these departments have banking or
ﬁnance backgrounds, although some banks employ in-house engineers and other
specialists, including people with relevant industry experience. Even though most
of the personnel are not experts in construction, engineering, or other nonﬁnancial
disciplines, by working on a variety of transactions over time they develop expe-
rience and expertise in various industries and the technical and practical issues
that can affect the viability of a project; however, banks also rely extensively on
specialized external advisers (cf. §5.4).
Project ﬁnance is a time-consuming process for banks and uses well-qualiﬁed
and therefore expensive staff; some past market leaders have withdrawn from the
business because the bank has come to the decision that a better return on capi-
tal can be obtained from other types of structured ﬁnance or from concentrating
on retail banking. Nonetheless as Table 3.2 illustrates, most major international
banks remain active in the market.
Projects need to be of a reasonable minimum size to provide banks with enough
revenue to make the time spent on them worthwhile. Arranging debt for a project
much under, say, $25 million, is unlikely to be economic (unless it is part of a pro-
duction line of very similar projects for which the same template can be used), and
most major banks would prefer to work on projects of, say, $100 million or more.
There are two different ﬁnancial roles in the project-development process:
ﬁnancial adviser and lead manager.
The ﬁnancial adviser. Unless the sponsors are experienced in project devel-
opment, problems are highly likely to be caused by negotiation (or even sig-
nature) of Project Contract arrangements that are later found to be unac-
50 Chapter 5 Working with Lenders