Q&A: Jonathan Lindenberg, Bank of Tokyo Mitsubishi-UFJ
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Q&A: Jonathan Lindenberg, Bank of Tokyo Mitsubishi-UFJ

In the post-crisis world, Bank of Tokyo Mitsubishi-UFJ has emerged as arguably the top shop for power financing. Jonathan Lindenberg is head of project finance in the Americas and since joining the bank four years ago from Citigroup, he has focused on increasing the bank’s project finance presence. Reporter Nicholas Stone sat down with Lindenberg to discuss BTMU’s relationship with Union Bank, changes in project finance and the search for new sources of capital.

Jonathan Lindenberg

Jonathan Lindenberg

Power Finance & Risk: Can you describe the bank from a corporate standpoint and how it is structured? Jonathan Lindenberg: We have a business, which now combines the project finance teams of Union Bank and Bank of Tokyo-Mitsubishi UFJ under single management. We are organized across several industries, the most important industry being the power industry. We also cover oil and gas, infrastructure, mining and some telecommunications. Our team consists of around 70 people with offices in Los Angeles and New York.

Our approach to the business is to be very broad in our offering to the client. Given our global scale and the size of our balance sheet, and when you look across the various entities in which we operate, our offerings are very diverse. We can do traditional project senior debt in both the bank and bond markets. We can offer something that is investment grade or non-investment grade. We can offer a product that is placed into the export credit agency and multilateral markets. Our mandate encompasses primarily debt, but we can also offer subordinated debt and tax equity. When you think about that breadth against the power business, it’s fairly compelling.

I joined the firm four years ago and our focus has been to alter in our clients’ minds the traditional view of Japanese banks. We have consciously tried to be responsive, innovative and broad in what we can offer. The flexibility that comes with all of those things is something that we have, by and large, achieved. It has been used a lot and I don’t want to use the word ‘agnostic,’ but we need to have the deepest strategic share of our clients’ minds. We don’t want to appear biased in one direction or another. We don’t want to say, ‘You must do a bond deal’ or ‘You must do a bank deal.’ We want to do the right thing by the client, given the pluses and minuses, the market conditions and the client’s objectives about how a deal should be structured. We were number one in the league tables for the first time in project finance advisory. That is, in part, acknowledgement from our clients that our team has delivered the right structures and solutions.

PI: BTMU has been a very active and involved in almost every deal of late. Is that something that you have a mandate to continue to do?

JL: We want to cover clients across the spectrum. So you’ll see our transactions coming from clients who are major strategic players, mid-cap and smaller strategics, developers, private equity clients and other funds. The newly combined team from Union Bank and BTMU serves that spectrum very well. I do expect that coverage to continue and our mandate is to grow. For instance, we will look to create growth from a client who the West Coast office had a legacy relationship with that hasn’t seen some of the products that the East Coast office has been offering its clients and vice versa. So we have an ability to do more. Our prominence in the market might mean that as a combined organization we can do more from a capacity standpoint and a breadth standpoint.

PI: How do you see the bank fitting in to the market and dealing with competitors?

JL: We compete in all areas of the market. We define that broadly. There are banks that are really strong in the project bank loan arranging market. There are banks that are pretty strong in the term loan B market or the investment grade project bond market with whom we compete. As I said, we are defining ourselves very broadly, so our competition might come from different sources. Often our competitors are our partners, and we know we need to be good partners to execute well for our clients.

PI: Japanese banks have become a lot more active in the past few years in the U.S. market and are now featuring more prominently in Latin America deals. Do you see that as a trend continuing?

JL: We benefit from a couple of things. We have a very long-term, stable source of funding. We also have a very strong capital position. So we’re very well positioned vis-à-vis both existing banking capital adequacy regulations and any future regulations that may come about—probably the best positioned bank in the market. That allows us the ability to offer our balance sheet, which I think probably distinguishes all the Japanese banks to an extent and us to a great extent. Where I think we are a little bit different is that we are focused on having that capability coupled with what we think is the best team and the best set of bankers in the market. We essentially hand-picked bankers when we built this business four years ago and there are people who have deep industry knowledge and structuring capability across the products that we offer. That’s how we want to use our balance sheet. To have this wonderful competitive advantage of cheap, long-term source of funding, plus very high capital, plus low issues with asset quality—which are the three things that can plague banks in the market—and to use those in a way that benefits our clients across the products is what we offer.

As for Latin America, we see the region as very attractive and full of sustained growth potential. Our firm has taken a broader interest in the region and has provided its subsidiaries there with additional long-term capital in order to grow. Project finance is a key part of that growth strategy.

PI: Does BTMU’s advisory come organically because it is doing more lending? For example, an existing client will just ask you about strategies too?

JL: I think it is a business that clients find helpful and desirable, when they feel you can offer something unique in an advisory capacity. That may be a unique skill, like arranging Japanese agency money, or a particular strength with an industry like the LNG industry where we have been successful, or a certain product that you offer. Advisory doesn’t happen in all markets. It does vary from market to market. While we do not get involved in the M&A advisory business in the Americas, we actively seek acquisition financing opportunities and often act as financial advisors when it comes to putting together the pieces of financing innovatively.

PI: The capital that people were accessing four years ago is very different to where they are getting their money now. Is that something that you are looking at, opening doors to new sources of capital?

JL: It is really about finding competitive, untapped sources that meet the clients’ objectives around leverage or around cost. It may also be simply to fill out the quantum of financing for a very large deal. That is when our skills are best put to use to do something innovative—using our global reach, which may involve agencies, or using the B loan market innovatively, or providing an edge to our clients. Even looking at some of the comments that people have made about us, people are surprised to see a Japanese bank that does things innovatively and responsively. I take great pride in that, as it is exactly what we are intending to deliver.

PI: BTMU has been quite active in offshore wind in the U.S. Is it hard to get comfortable with those types of projects?

JL: Offshore wind is new to our country, but it is not new to the world. When you look at our global footprint, we can draw experience from around the globe when it comes to things like offshore wind. So our work in Europe, with London Array, and some of the various earlier stage offshore projects have given us a capability that perhaps others don’t have. It has also given us an ability to use our capital for transactions like that. I think the firm, throughout senior management, is used to evaluating and accepting technologies like offshore wind.

PI: In terms of deal structuring, what kind of innovations are you seeing there?

JL: One of our strengths is with the Japanese agencies. They are really looking to expand to benefit Japan and to fulfill their mission of fostering Japanese exports. In an effort to do that and create growth within their country they are willing to do innovative things overseas. An example of that might be an acquisition financing that we did of some existing and some to-be-built wind projects in Canada. That, in itself, doesn’t seem like a likely candidate for financing from the Japanese agencies, but we were able for the first time to put some of those agencies into that very large transaction in an acquisition financing capacity. That is an example of an innovative sourcing to a particular project.

We are also quite involved in the B loan market. We are able to multisource and are not looking at projects as solely B loan placements. We try to put other sources of financing, whether it a combination of B loans and traditional bank loans together in a single project in ways that have not been done before. So I think you will see some of that coming down the pipe from us.

PI: Just on the B loan market, pricing took a bit of a jump after Ben Bernanke’s recent comments. What do you expect to see for pricing in that market?

JL: It is a market that has traditionally had, and will continue to have, some volatility in it. I am very excited that it has returned as a fairly significant source of capital for the project market. It has allowed projects that otherwise might not have been built to get built. It has allowed projects that needed recapitalization to be recapitalized to benefit their owners. Even though there is some short term volatility, it should remain a pretty significant source of financing. We are working on some projects that are currently launched into the B loan market, and because of strong investor demand, we anticipate that they will be successful. B loans will continue to be a source of financing that one will have to be flexible about. Our strength lies in that flexibility. If you are a bank capable of multi-sourcing, you can offer many different solutions to a client. If there is a particular market that has volatility and it might not be the best thing to do in a given timeframe, being a one-stop shop that has the ability to offer backstops and access multiple markets quickly really benefits our clients.

PI: One of the areas that has benefited from the B loan market is merchant power. What kind of trends are you seeing there at the moment and do you expect pricing to keep trending downwards? Are investors becoming more comfortable with the asset class?

JL: I think B loan investors are comfortable with the asset class and they will be there in the long term. I think that pricing will be a function of many different market forces, alternate investments that investors may have, and so I think it is a market that has to be carefully watched as a source for financing of projects. I don’t really want to comment about what I believe pricing will be in the future, because I don’t think anyone knows with any level of certainty. I don’t have a crystal ball. But I do think that it will continue to be a significant source of capital for the merchant power market. I think the structures have evolved and are a bit more conservative than in the pre-2008 timeframe and may continue to evolve as investor and rating agency preferences change. The market needs to be constantly monitored, so that clients can be aware of what opportunities might be available when accessing the B loan market.

PI: There hasn’t been a resurgence yet in some of the more speculative features of the B loan market that we saw a few years ago, like PIK loans. Do you think we will see some of those coming back?

JL: That was a specific time and a place. The PIK market was never a big factor in power project financing. That was more used for pooled asset acquisition, infrastructure and transactions of that nature. I don’t expect that it is going to be a big feature in today’s market. Structures are slightly more conservative on B loans than they were in the pre-2008 timeframe. I do think there is a focus on which power market the project is in. Is it a market that lends itself to high liquidity? What level of hedging is necessary in this market? The investors and ratings agencies are pretty savvy, given the experience of pre-2008, of what the structures should be and how sound they are. So, I think there is a lot more rational behavior in this market among investors.

Check back next week for the second installment of this Q&A, when Lindenberg discusses the LNG and tax equity markets, as well as potential challenges for power project finance.

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