Best banks in project finance in 2001

Global Finance, Oct 2001 by Glasgow, Bo

To counter the negative arbitrage during the construction and ramp-up period, limited prepayment flexibility, lack of pricing certainty, and two investment-grade ratings requirements for optimal execution in the capital markets, CSFB's $2.7 billion institutional project finance program provides issuers with speed of commitment and certainty of execution in any market condition, eliminating negative arbitrage by allowing multiple draws and requiring only one investment-grade rating.

Equitable Resources Appalachian NPI was able to obtain $251.5 million, 7.76% senior secured bonds due in 2016 and $10 million membership interest (equity), including monetization of Equitable's natural gas reserves, with a 15-year final and 6.5-year average life, and therefore enjoy the off-balancesheet and off-credit-treatment benefit in a program that provided for both debt and equity.

In the leveraged lease market, CSFB offers well-developed leasing structures that provide clear benefits to the lessee/issuer, including significant increases in EPS under US generally accepted accounting practices and improved return on capital, by virtue of off-balance-sheet treatment of leased assets and monetization of tax benefits for no-tax payers. The leveraged lease financing of 81 locomotives for Canadian Pacific Railway utilized Equipment Trust Certificates with a 21-year final and 14 year average life.

CSFB's assistance in the Mirant $3 billion acquisition of PEPCO Coal Assets is illustrative of a tour-de-force, multilayered multimarket merchant approach. It used triple leverage to minimize cost of funds: a capital markets lease debt for merchant portfolio GenCo (with bank backstop), an intermediate HoldCo bank facility for Mirant American Generating, and a corporate GenCo bank facility for Mirant. The multitiered structure facilitates appropriate risk allocation and investor interest; the debt optimization results in investment-grade ratings up the entire chain.

LATIN AMERICA-WESTLB

Another leader in global project finance, with great influence and effect in virtually every region, WestLB has topped the league tables in loans arranged and provided in Latin America during the past year and a half. It is also a factor there in the project finance bond manager category.

WestLB, ABN-AMRO, and Bank of America were mandated as advisers and lead arrangers for the $1.75 billion refinancing of BCP, sponsored by BellSouth and Grupo Safra to provide B-band cellular services in metropolitan Sao Paulo. WestLB's structured finance team pressed for a solution that would support BCP's business plan, complete with longer tenors to reduce its exposure to periodic short-term refinancing risk. Political risk insurance was necessary to source almost $1 billion in debt. A package of both private- and public-sector insurance was assembled to complement the existing involvement of EDC. AIG led the private insurance piece and OPIC and MIGA provided the public-sector insurance. The second innovative feature of the structure was inclusion of a local-currency financing in the form of rated local debentures, allowing Brazilian banks and institutions to provide the local-- currency equivalent of $275 million.