Saturday, February 2, 2013

Fundamentals Still Prevail for Structured Project Finance

Since the collapse of Enron over a decade ago, the world of structured project finance has undergone a positive transformation. The essential fundamentals of structured project finance still prevail with respect to “secured” capital via non-recourse (contractual obligations), limited recourse (assets mortgaged) and total recourse (balance sheet exposure). The same applies to the capital process of; formation-allocation-deployment-returns.

Essentially gone are the days of capital formation on an “unsecured” basis. Today, capital is highly conservative and risk averse. It seeks destinations which are safe, secure and provide definitive returns with pre-defined exit. Key goal is liquidity.

In addition, the sister of structured project finance, namely, transactional framework which is “sacro-sanct” and with “back-to-back” arrangements plays a critical role in the aforementioned “secured” capital process.

With rising sovereign debt and deficits, digital money printing by central bankers, and resulting declining currencies, fundamentals of structured project finance will continue to play an important role in various industry sectors, segments and commercial markets.

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