Banker: Track record, investment proposition among factors in investing decisions

A company’s track record is among three important factors taken into consideration when making an investment decision to back projects early on, according to Daniel Mallo, managing director, project and structured finance – energy with the French bank, Société Générale – New York.

Speaking with TransmissionHub after his presentation at Infocast’s Transmission Summit 2012 in Washington, D.C., March 1, Mallo said another important factor involves the economic rationale of the project. “Do they have an idea that makes sense [or] have they identified a unique need? That’s the second important driver,” he said. “The third one is where are they in the process, have they been able to surround themselves with quality parties?”

Those parties include people helping developers on the engineering, permitting and environmental aspects of the project.

“Are they doing the right things to get this going?” Mallo added. “If they meet those three tests – track record, surrounding themselves with the right parties and having an investment proposition that makes sense – then they get our interest and we’re more focused on evaluating their project and possibly providing them with capital to move it to the next stage.”

During his presentation, he said the hardest capital to raise is the earliest capital, particularly if there is regulatory uncertainty or a complicated permitting situation.

“[F]rom a financing perspective…we need some sort of a stable regulatory framework,” he said.

Himanshu Saxena, senior vice president at Starwood Energy Group Global, agreed that a stable regulatory regime is important.

Starwood Energy Group invests in energy projects, including the 65-mile, 500-kV HVDC Neptune Transmission Project, which is sponsored by Neptune Regional Transmission System and has a long-term contract with the Long Island Power Authority.

“If there are incentives in place that are granted to a project that needs to start construction, or if the system is trying to incent a new connection line between two markets, it’s important for the regulatory regime to remember that the investors come in and make an investment counting on those incentives to remain in place for the next 15, 20 years – these assets are long term,” Saxena said.

Mallo said what Société Générale – New York tends to do is look at how a regulatory body has behaved in the past, including rate case applications that have been reviewed in the last 10 years, tariff decisions that were made, and whether any rate case applications were rejected and on what grounds.

“If we look over time and there is consistency in decisions that have been made [and] there is consistency in outcomes on…tariffs, that gives us comfort,” he said. “Rightly or wrongly, we assume that that consistency will continue over time, but that’s one thing that we look at is how has the regulatory body behaved historically.”

Saxena said it is a collaborative process with regulatory agencies. “This is a very regulatory driven area and we would be foolish to stand aside and let things happen, so we actively become a part of discussions at FERC,” he said. “At state commissions, we try to represent the owners’ point of view, we try to represent the developers’ point of view, and we spend a lot of time talking to the FERC commissioners [and] the FERC staff and discussing the challenges of developing, permitting, financing and building a transmission project. It’s a very interactive process.”

Mallo noted that the owners are a lot more involved in that process – and rightly so, as they own the asset. However, there are times when the owners or prospective owners of assets “turn to us and say, ‘Can you help us make some points here and can you help us carry home the message that if you continue down that path, it’s going to be very difficult to get anything built in your jurisdiction because the banks are not going to be here,’” he said. “So, we assist in helping some of those messages through in certain situations, but it’s certainly the owners that are…facing the regulatory bodies rather than the bankers.”

About Corina Rivera-Linares 3286 Articles
Corina Rivera-Linares was TransmissionHub’s chief editor until August 2021, as well as part of the team that established TransmissionHub in 2011. Before joining TransmissionHub, Corina covered renewable energy and environmental issues, as well as transmission, generation, regulation, legislation and ISO/RTO matters at SNL Financial from 2005 to 2011. She has also covered such topics as health, politics, and education for weekly newspapers and national magazines.