I’m sure that my regular readers have noticed the absence of postings for a couple of months now. I have a good excuse. I moved my investment banking licenses under Source Capital Group, Inc. based in Westport, Connecticut.
Because the regulator (FINRA) has seen some I-banking bloggers use the medium to sell or advertise some investments, it can be an issue. Such selling is a big no-no in the securities world (we’re supposed to Know Your Customer) and firms are required to keep a Compliance Officer on board who is in charge of keeping things kosher.
Now that I’m settled into the new firm, and by the gracious permission of our firm’s Compliance Officer, I resume your regularly (OK, irregularly) scheduled web log.
In the renewables project finance world, the big question remains “is anyone doing any deals?” If you were to try to guess by looking at the press releases, you’d say so. I’m not so sure how many deals are actually being signed since the financial meltdown of this fall. What we’re seeing today are deals that were very far along the investment process during the summer and have only just been publicized.
I’ve spoken to a friend at a big-name (and still standing) bank that does a lot of renewable project lending. I asked him point-blank “are you guys loaning any money to projects these days?”
His answer was, “not really.” My friend went on to add “we are working on deals, but to generalize, they are things that are very familiar to us, like the second phase of a wind farm that we’ve already loaned to the first time. We know the people and the resource so it is easier to get through the credit committee.”
Another aspect that I had not anticipated is that for now, the banks that I’m talking to prefer LARGER deals. You read correctly. They really do still have money to put to work (at least some of them do). So in addition to looking for deals that have components of familiarity to them, they want deals that are big enough to put a couple extra sets of eyes on to check and recheck the project’s viability.
But what about the equity players? Because of the structure of most private equity funds, they have long term commitments from big institutions-pension funds, endowments, etc. that they can draw down as they need it.
The challenge is that most renewable energy projects are built with a mixture of debt and equity. If the project is built with all equity, the returns to the investor may fall below the threshold required by the fund.
I will readily also point out that there are tax equity funds that invest in all-equity deals for the tax benefits they deliver. The challenge that they face is that tax credits are only valuable if you have a tax liability. There are a lot of tax equity fund investors who, thanks to Wall Street events, may not have or have doubts about their future tax liabilities.
So pretty much the whole industry is moving at a slower pace for the last couple of months.
When will it end? When will things get better?
As the great Yogi Berra once said, “prediction is very hard, especially when it’s about the future.”
Based on the bankers that I’m talking to and the partners at the project finance funds, I think that we will see attitudes (and check books) turn a corner now that we’re in the New Year. The continuing de-levering of the economy will mean that money will still be tight by 2007 standards, but new deals will start getting done with more and more frequency.
In the meanwhile, I’m focusing my time on clients who have all equity investment opportunities. They aren’t as big as the levered deals of recent years, but at times like these fewer moving parts (especially when some of the parts are unavailable) make for easier deals to get closed.
Come on 2009!