Ep117: Commercial Bank, Term Loan B and Project Bond Market
Aug 24, 2020
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Exploring differences between commercial bank, term loan B, and project bond lending markets; considerations for debt financing strategies for various project types; analysis of market trends and participation during COVID crisis; navigating credit analysis in renewable energy projects; predictions for World Series winner and hopes for vaccine effectiveness.
Different markets like bank, bond, and term loan B cater to diverse borrower needs and risk tolerances.
Project financing choices vary based on project stage, with bank market preferred for flexibility and cost efficiency, and bonds for stable cash flows.
Deep dives
Overview of Different Markets for Borrowing Money
Three major markets for borrowers to obtain money for projects are discussed: the bank market, which offers flexible and cheap borrowing but limited leverage; the bond market, providing long-term fixed-rate funding up to 20-25 years; and the Turnwell B market, suitable for higher leverage with loans traded like stock. Each market caters to specific borrower needs and risk tolerances.
Considerations for Different Project Stages in Choosing Financing
The choice of market for financing can vary based on the project stage, with construction deals often favored in the bank market for flexibility and cost efficiency. Operating projects with stable cash flows may opt for project bonds for long-term financing, while riskier ventures seeking leverage can utilize the leverage loan market for aggressive lending terms.
Market Outlook and Impact of COVID-19 on Financing Trends
Despite challenges posed by COVID-19, the financing market remains resilient for essential sectors like infrastructure and power. Funding costs have improved post-COVID disruptions, with markets showing liquidity and varied investor appetite. The outlook includes steady deal flow in power and infrastructure sectors, driven by continued demand for essential services amidst the pandemic.
Ralph Cho and Mike Pantelogianis, Power & Infrastructure Finance Co-heads for Investec in North America, join us to discuss the commercial bank, term loan B and project bond lending markets. We get into the different features of each market, how lenders deal with construction risk differently, the speed of execution and ratings as well as the current tax equity market and the group’s picks for this year’s World Series.
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