After spending nearly two decades at BNP Paribas, Andrew Platt, head of project finance in the Americas, continues to see the lender evolve in step with the power project finance and M&A market. The bank’s power infrastructure and project finance team draws on a variety of internal resources that have developed over the years as their clients seek to adapt to a changing landscape of deal structures. “We have a core competency around understanding standalone or small groups of assets in power, energy and infrastructure and working with clients to structure a whole array of options around those assets,” Platt tells PFR in an exclusive interview. Platt sat down with Senior Reporter Olivia Feld to discuss the bank’s structure and strategy in North and South America and its client approach.
PFR: Tell me about the project finance team at BNP Paribas and what it’s working on.
PLATT: The team name is power infrastructure and project finance. We changed the name a couple of years ago when I came back to head the team for the Americas to better reflect the full scope of what we do. While project finance is still at the core of the team’s focus, project finance as a definition and a product has evolved over the last couple of decades.
The term project finance used to refer to long-term construction lending to build power plants and pipelines. As the markets and clients have become more sophisticated, the different capital options have also evolved. Today, there are many products, including tax equity and derivatives and other things in the mix that make project finance, as it was previously defined, different than it was years ago. This is relevant to us because we do more than just bank lending. Many other players in the industry are specifically focused on one area, such as M&A, or bank lending, or capital markets and may have a different institutional view of what project finance means.
Within our team, we have both a client coverage responsibility for certain relationships and transaction execution responsibilities. We are always really trying to draw on the team’s expertise to pull together the solutions that are the best fit for our clients. Sometimes the best solution is simply bank lending for a project deal. We’re very good at that and we still like to provide that service. But we’ve also developed strong skills in executing into the bond market and into the institutional term-loan market. We have a full complement of other products that fit in nicely with our business.
We have a group called Capstar Partners, which specializes in tax-related advisory, including a significant capability in U.S. renewable energy. We work a lot with them both as an investor in tax equity transactions or supporting advisory assignments for solar, wind or other renewables. Another group within the bank that has been built up considerably over the past couple of years is commodity derivatives. Together we can integrate their work into what we’re trying to accomplish in project finance.
For example, bringing a power hedge around a wind farm or advising a client that is trying to decide how much hedging they need versus how much debt they can raise around an asset. We can offer advisory services by working with commodity derivatives to help the client develop a strategy, understand all the options they have around commodity derivatives and then help them optimize how much debt they can raise, explore the different hedging options g, and bring them real market experience and execution capabilities.
We have a core competency around understanding standalone or small groups of assets in power, energy and infrastructure and working with clients to structure a whole array of options around those assets. It could be debt plus any of the other options that I mentioned, and it could be debt in any number of the markets.
Sitting in New York, we have a team focused on Latin America and another focused on North America. We also have a five-person team in Sao Paolo that solely focuses on Brazil. The reason for the segregation across geography is that there are constantly different situations in every country, as well as differences between the markets and the client needs. We’ve developed expertise in South America, for example, in bonds in Peru. We saw the opportunity several years ago and did some of the very first project bonds in Peru. We’ve developed an outstanding franchise in Brazil, working with clients, to help them finance and structure deals to go to BNDES.
We take a very country-specific approach with a general understanding of the region and it is supported with a full banking capability in Sao Paolo and other regional rep offices throughout Latin America.
One of the product areas where we are seamlessly integrated is with M&A. After I left the M&A team a couple of years ago, that spot remained vacant for a period of time. However, the premise of why we originally had that team and why I moved to M&A still existed, which is the opportunity to work with our clients around selling assets and advising strategic partnerships. Anything with regards to the actual ownership and strategy of an asset seemed like a logical extension of the other things we were doing within the bank. We went through the process of re-staffing, re-engaging and rebuilding that effort around M&A in our corporate finance team.
We hired a new head for that team a little more than a year ago. Dean Keller joined the bank in November 2013. Over the last year, we worked very closely with Dean and his team, and executed a couple of really interesting mandates together.
PFR: How long have you been at the bank and how has your role changed?
It’s hard to believe, but I’ve been here for 19 years. I joined Paribas before it merged with BNP. I joined as an associate and for me, project finance really just captured my attention plus it continued to evolve and become so much more dynamic during my time with the bank.
I continue to help develop the business for BNP Paribas. When I first joined the bank, we did a lot of advisory, international work and a lot of lending. Over that time, I was one of the leaders helping to develop our project bond and term loan B capabilities. I worked closely with the rating agencies, and then closely with our rating advisory team when we hired them, to continue to evolve all those debt products and really build a true investment banking platform.
I became co-head of the North America team in and then sole head in 2007 until I moved to corporate finance to start the M&A practice in 2010.
The decision to come back to project finance was an interesting one for me. When I je-joined the group, the bank was looking for a revised approach to project finance. At about the time Brian Goldstein left the bank, I was asked to come back and take over the team for the Americas and take a close look at where the opportunities were for the group and what we should or could do differently. That has been my mission for the last two-and-half years.
PFR: There’s been an uptick in BNP Paribas’ participation in power and midstream gas PF deals in the last year. What do you think are the internal and external factors at play at the bank?
When you look at what we did in 2014, I think we closed 22 deals within our team, which is a busy year for us by any historical standard. But I think it’s representative of our commitment to being a leader in this space, and bringing capital and solutions to our clients and making sure that we’re positioned in a leadership role. It doesn’t necessarily always mean we are writing the biggest check, but it does mean we’re bringing capital to the table for our clients.
One of things we have done within my team since I took over, is to take a very hard look at our capital envelope and find ways to be as meaningful as possible to key clients. We want to support the development of their strategies, which includes providing more of a holistic investment banking platform.
As the market has improved since the end of the European debt crisis, access to dollar liquidity and its cost have improved dramatically. Additionally, many assets on our books started prepaying more rapidly.
I think the conversion to these things, along with a more focused strategy, allowed us to start using our capital more wisely. We were especially interested in allocating capital for those deals where we were able to leverage the whole investment banking platform.
The strategy after the European crisis really helped to increase momentum for the team. As the capital situation for the whole market and BNP Paribas has improved, we’ve been able to take advantage of the fact that we were investing in the franchise and investing in key relationships. The improvement has enabled us to accelerate that process.
PFR: BNP Paribas has recently participated in quite a few merchant and quasi-merchant gas-fired deals. Why are those attractive and what challenges accompany those sorts of transactions?
Project finance has historically been rooted in contractual cash flow, or predominantly cash flow, around a structure. Taking a view on merchant power requires a deep understanding of the market and the assets. It also involves a high degree of selectivity to make sure you are working with the right clients.
BNP Paribas’s ongoing development and continued investment in our commodity derivatives platform have meant that as an institution, we have made the decision to be active in power markets from a trading and derivatives perspective. Our commodity desk is active in PJM, Texas, New England and New York gas markets on a national level and Canada. In addition to those sitting on our desks and structuring the deals, we also have outstanding commodity strategists around natural gas and oil. They frequently join conference calls with clients to share their views on oil and natural gas. There is a huge wealth of knowledge within the commodities group at the bank.
Part of our strategy to marry that product with our business has facilitated an understanding on a very granular level. Institutionally, we have a lot of component pieces to understand these markets.
Our strategy around U.S. power transcends project finance. We have also focused on investing in relationships with the IPPs.
The new greenfield deals have the most visibility when people start to think of merchant power, but there has been a number of transactions over the past several years that have incorporated some element of either merchant cash flow or residual value analysis at the end of maturity. That’s a market we never really left. For us it just makes sense to support where our clients want to go.
Some of the perspective that I brought back to the team after spending time at M&A included looking at asset valuation with a deeper understanding of cash flows from an equity perspective. A lot of lenders don’t think about asset value per se, they look at cash flow to debt, so it’s a slightly different philosophical view.
Check back next week for the second installment of this Q&A.