Is Project Financing More of a Cap Markets Function than Traditional IB?

Interested in this as well

Doubt you're going to get a real answer though. 6 forum posts in the past year on project finance with no real answers.

Also interested.

Depends on what role in the project financing chain you are working in:

1) If you work in a bank which provides the financing then you are in a debt appraisal role - modeling (or checking the finance seeker's (sponsor) model for assumptions), projecting cash flows, running sensitivities, doing stress tests, running the proposal past the credit committee, negotiating the structured lending documents. Most bankers who work on these kind of roles either continue here or move to sponsors' side or to an infrastructure fund. While skills are similar to investment banking, it also has elements of a risk management kind of role (don't be put off by it)

2) If you work on the advisory side of the project financing business, you work with the sponsors to do the modeling, and in effect running the whole process to raise the finance (you are on the other side of the table for the activities mentioned above). The scope of the role very much depends on the sophistication of the sponsor and their in house capabilities (just like companies may have internal M&A teams and the M&A advisor's role depends on what the client's capabilities are, similarly companies have internal project finance teams). This is more like the traditional investment banking role but with a specialisation on the debt side. The industries you would focus on would generally be power & utilities, roads, ports, oil & gas, airports etc.

I work in the Middle East in the utilities industry on the sponsors side in a team which looks after M&A and project finance. For no. 2 above, I honestly have never seen BB's do the role - it is usually the big 4 or just small boutique advisory firms which get involved in such advisory as honestly the fees do not justify big banks getting into such a business. Things might be different elsewhere, but do note that project financing is big in Asia including the Middle East, but not so much in the US where the debt markets are much more evolved.

If you are interested in project financing, do understand that the bonuses may not be anywhere close to IBD type bonuses, but the hours are better as well, though skillsets are roughly similar.

Also, as the saying goes, people who couldn't get into M&A get into project financing ;)

First of all thanks so much for an actual real response on the matter, I've been trying for a while.

I definitely see the distinction in the Debt Appraisal/Advisory roles within the spectrum but I'm more aiming for banks that have more comprehensive coverage. Since you work in the middle east, I'm under the impression that HSBC's project finance unit does very well in the area. I'm of course also interested in pursuing the market leaders as I understand it in BNP Paribas' project finance (sub. Structured Finance) and Credit Agricole/SocGen.

Now I'm curious about your statement; "people who couldn't get into M&A get into project financing". In companies like HSBC/SocGen/BNPP/CA is it really that second tier (bonus and exit-opps wise)? I don't really have any interest in working in a broader M&A fund but would eventually like to move to an infrastructure/energy PE fund. Assuming I could land FT with one of those top 4 would I really be too far behind the traditional IBD crowd in pay and future opportunities?

Thanks,

Up to this point both answers have been referring to smaller banks specializing in PF from what I understand. Are you saying you worked at a BNPP/SocGen/HSBC PF unit and the pay was significantly lower? I'm not worried about getting in, I think my credentials are solid, but about wasting my time being interested in something that doesn't pay worth shit.

I'm not that money hungry that I'd skip out on something that interests me for a ~20-30K all in discrepancy, but if it's like the IBD-Ops kind of pay spread I better just suck it up and be bored in an M&A group.

IndGes: That sounds about right for debt syndication/participations FT base salaries. I would put 10-15k lower for analyst/Sr. analyst level and 20-30k lower for Assoc, although the biggest differential would be bonuses. Advisory-side bonuses are probably better, but on the debt side 10-15% bonus was considered completely reasonable.

Not to be obvious, but the country matters as well. Lloyds has a sizeable in PF team in London HQ, but its NYC PF operation is run by just a few guys. Given Lloyds' prestige and deal size is superior from the other side of the ocean, your workload will be tougher and pay will be superior in the HQ. On the other hand, being Toronto-based at TD or Madrid-based at Santander you can't expect pay comparable to guys working in London and NYC.

The important thing is to think about your comfort with the product. You'll be focused on long-term (think 20 years), steady cash flows going into relatively uncreative, legally ring-fenced capital structures little risk and little upside. For the live-fast, die-young crowd who doesn't really respect the idea of a credit committee, this might be torture regardless of the fact that you get to leave the office before the sun goes down.

Very good description by vaguefunda of what is done in PF/SF, particularly valid for energy/infrastructure.

Pay is lower than IB though (way lower bonus) and people may not be as high profile as IB.

Best groups are BNP, Credit Agricole, Natixis, RBS, HSBC.

SB's for Wartruck.

Not sure I necessarily agree with all of the above but it probably has a lot to do with very different institutions and roles that are talked about.

PF is a bit of a unique mix between investment and commercial banking in that it combines a lot of elements of IBD with a very strong credit process. There are a lot of smaller banks involved in participations and various players looking to try to offer advisory services but the majority of the big deals will be lead, structured and financed by the Japanese, French and other European banks which dominate the business on a global scale.

The hours will be better than m&a/coverage largely due to a more predictable work stream (e.g. certainty of a billion dollar infrastructure project is far higher than that of an m&a opportunity) and a lot less pitching. However, the actual deal process requires extensive due diligence, financial modeling and endless documentation so I wouldn't count on leaving the office before the sun goes down in a major pf team. As mentioned above, being in a key execution center will lead to a lot more deals and execution work. When it comes to pf advisory, this can actually be an incredibly tedious role for very little return. Major banks really do this to position themselves for the greatest slice of the deal economics so I would be careful in portraying this as a more lucrative role on its own (though it does add to credentials).

Another difference to IBD is that the major players are institutions such as the French banks (BNPP, SG, CA) which have traditionally been stronger in "structured debt" than in M&A and have indeed invested in junior talent development within project finance. I'm not too familiar with the Japanese banks but many of the other European players are usually lacking in junior development and thus there really isn't a pf analyst pool that could can be used to generalize about exit ops etc (unlike in IBD).

As for pay, I have to disagree with "10-15%" being acceptable on the debt side. I'm not familiar with syndications (though 10% would seem v low for any cap mkts position even at a commercial bank) but on the origination side of a major pf player I would say the number is far closer to m&a than to back office and probably a fair compromise when the hours are considered.

Thanks to everyone who has contributed. Really helpful.

Ya thanks to everyone for sure. I was all jacked on Project Finance for a while now and I'm glad I know more of the reality of it.

BTW, the comment "people who couldn't get into M&A get into project financing" was a HALF joke - there is some amount of truth to it (a number of proj fin people would rather be in M&A) but not completely true (I know of a number of brilliant people in proj fin who would have pwned any M&A banker if they chose to be in the field)

Nice to see some thread on Project Finance!

I work in PF in one of the 3 French banks which is also one of the top global player for FP (as mentioned earlier, top PF players are the French, Japanese and English banks) so maybe I can share some views on the business.

Firstly, at least in the 3 French Banks, PF is a highly regarded and respected business line, because (i) it's one of the few ones where these banks are worldwide top players (with EQD for SG, and Euro Bond origination for BNPP), (ii) the projects we finance are highly visible with large-scale impact on a country's (or even continent's) economy, and (iii) PF deals involves very high amount of cross-sell revenues and have a major impact on the relationship with the Project's sponsors which are usually key corporate clients of the banks.

Unlike what was said previously (and again, I'm only commenting on what I see at BNP/SG/Calyon), PF teams are usually composed of pretty high profile bankers and I believe that there is no significant difference with the profiles you will find in Corporate Finance teams. Juniors PF bankers are all coming from from the finest engineering / business schools (and very often both), and I do not agree that PF is a second choice for those who could't break into M&A. Pretty much all the bankers I see in PF ended up there as a first choice (and so did I).

In terms of compensation, what I see is that base salaries are in the highest range of the bank, on par with Corporate Finance and Capital Markets. Bonus are indeed lower, but still front office-like bonus and much closer to M&A bonus than to MO bonus (by far!).

Hours are very manageable, and juniors are not treated like slaves as in M&A. However you still get your fair amount of work especially at VP/Director levels when you are simultaneously in charge of 3/4 big transactions representing several billion dollars of debt to be raised. Don't expect to take a week of holidays switching off your Blackberry, but at least you usually get your week-end out of the office (bringing a bit of homework) and most of the time you sleep at night, which in my view is a fair trade for a relatively smaller bonus.

Indeed, you usually find top French engineers with a specialization in finance (MFin at HEC Paris or equivalent). They are interested in doing something which mixes finance & more engineering stuffs. My friend who has just graduated from an engineering school is trying to break into PF. Corporate finance (m&a / coverage) doesnt interest him at all and he's not applying at all to such groups even if he would probably land some interviews there.

In the French banks, base is the same in coverage groups, in product groups & in structured finance groups. The bonus makes the comp different but you still a get a pretty decent bonus and in the end you work less.

sounds like a pretty sweet group actually.... very interesting and informative thread.

Can anyone comment on the pace/time scales of work compared to other areas in banking?

I worked in one of the hybrid PF/Energy Finance groups at a BB. We always sat on the product side of IBD and had a ton of interaction with the coverage/lev fin/syndication groups. I know that many of these banks usually lump a bunch of the debt structuring into coverage or lev fin. The good thing I liked about my group was that we were usually only pulled in when a deal was almost fully baked and someone needed financing. There was not a ton of mindless pitching, running comps, etc.

I chose the group mostly because I really liked the people. To be honest, I did not care about the product (power/infrastructure) at all in the beginning. In fact, I found it to be so boring and very 'unsexy'.

As far as pay: same as IBD salary but lower bonus than something like M&A. I wont comment on the hours because I was in the group at a very different time (no deals to be done) but talking to my old colleagues and my old MD, they all seem to be working pretty hard these days with pretty rough hours.

HerSerendipity, why did you leave? And where did you leave to?

Oreos:

In a decent team I would say analysts would work on average 60+ with 80+ during busy periods but obviously this depends on the group/culture etc and can be lower/higher. Advisory mandates or leading a deal will more draining while some club deals might be pretty straight forward to execute. At the junior level, modeling will be the most time intensive activity especially as the models will 1) be more detailed than general valuation models and 2) require more accuracy and be audited if they are to drive funding for the deal. Time/project management is important as every bank will need to do extensive DD (after all, you are funding decade-plus, non-recourse deal). As mentioned above, there is less pitching than in coverage due to predictability of transactions but some banks will have their PF do more origination than others so it's not always a pure execution group.

Are these French/Japanese/English bank PF groups a feasible exit opp for an American kid doing his analyst stint in PubFin at a NY BB?

If so, I'm guessing it be best to push for a spot in the infrastructure group at the NY BB?

Well, the French banks are present all over over the world and even though the largest teams are in Paris and London, you have fairly big, autonomous teams in NY / HK / Singapore.

Other that in Paris, French nationals are numerous but not "largely dominating". Give or take you have about half of the teams composed of non-French nationals.

1) If you work in a bank which provides the financing then you are in a debt appraisal role - modeling (or checking the finance seeker's (sponsor) model for assumptions), projecting cash flows, running sensitivities, doing stress tests, running the proposal past the credit committee, negotiating the structured lending documents. Most bankers who work on these kind of roles either continue here or move to sponsors' side or to an infrastructure fund. While skills are similar to investment banking, it also has elements of a risk management kind of role (don't be put off by it)

"However, the actual deal process requires extensive due diligence, financial modeling and endless documentation so I wouldn't count on leaving the office before the sun goes down in a major pf team. "

Correct descriptions. This is what Structure Finance & Project Finance people do (day-to-day activities)

Really interesting post! Justtwo questions: 1.- I know in M&A people tend come from target schools even without a financial backgrounds. What's the situation for PF? I am interested in PF rather than M&A, I PhD candidate in civil engineering, which is related to it, but nothing to do with finance. 2.- Many of the industry leaders are French and headquartered in Paris. Do they have PF departments scattered all over the world, or are the deals carried out in Paris? Just worried about my French skills...

Bump, can anyone provide details on to what type of technical questions one can expect from an interview for analyst position off course. Thank you.

Bump, can anyone tell me what kind of technical questions to expect for a Project Finance Interview? Is it exactly like a typical IBD interview or do they ask different questions?

Bump. What about Project Finance at a developer - what are the exit ops? Is the work fairly similar as at a bank?

Adding some updated info as I'm currently at a BB's project finance team in NYC. We get lumped in with all the product groups in IBD (i.e. we're under one umbrella with LevFin, DCM, ECM etc. - think GS Financing) and as such our base is the same and bonus is similar to traditional coverage, maybe the aforementioned 10-15% lower. Hours can be as bad as IB when you're running a deal, but on average I'd say 70hrs/week, with a couple of Sundays every month.

Our bread and butter is the advisory / bond structuring side of things, and when we lend or participate in a syndication it's usually purely relationship. Important to note that the French / Japanese banks do indeed dominate loans due to low interest rates and huge balance sheet, but we BBs outcompete them in advisory / bonds since those processes require a bit more diligence and technical knowledge. In my opinion the advisory deals are a lot more interesting and you learn a lot more leading a process rather than just lending $XXmm. Our main competitors in the space are certain other BBs - in my experience everyone except MS/UBS/DB does PF advisory - EBs with debt advisory capabilities (e.g. Evercore / Lazard), and yes the BNPs/HSBCs of the world.

Most of what was said above about day-to-day is pretty accurate. We do all the modeling (coverage, e.g. energy or industrials specializes on corporate-level - we do all project-level modeling, with IBD sending us industry slides every once in a while. Stuff like "China Trade War Update on Trans-Pacific Shipping"), and my group is also responsible for origination so we take care of almost all pitches that come in, which obviously has its pros and cons (pro: more experience and modeling. con: more hours). We also work with companies across their capital structure, so our issuances could be AA or also something like B - important to note even in non-IG deals we still take care of everything, i.e. LevFin doesn't get involved too much. Coverage doesn't do jack on most of our deals which is kind of annoying since it equals more hours on stuff that really isn't our focus.

Exits are good if your group does the modeling (like mine), but if you want to do PE then you're constrained to Energy / Infra funds. Within those niches, however, you have a shot at everything, incl. the KKRs of the world. Given our strong credit modeling background you also have recruiters spamming you for opportunities at credit funds (e.g. credit HFs or Blackstone GSO). I personally am leaving to an UMM Energy fund once I finish my two years.

Happy to answer any questions.