Chapter 5 - Working with Lenders

Abstract

This chapter highlights the procedures for raising project finance from private-sector lenders, particularly commercial banks and bond investors. Most commercial banks in the project finance field have specialist departments that work on putting project finance deals together. Project finance is a time-consuming process for banks and uses well-qualified and therefore expensive staff; some past market leaders withdraw from the business if the bank comes to the decision that a better return on capital can be obtained from other types of structured finance or from concentrating on retail banking. Therefore, 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, and most major banks would prefer to work on projects of, say, $100 million or more. Investors in bonds generally do not get directly involved in the due-diligence process to the extent that banks do, and rely more on the project's investment bank and a ratings agency to carry out this work.