Written by: Adam Gelder | Head of Financial Institutions for BNY Mellon’s Corporate Trust business in EMEA
What’s the common link between the following projects: An offshore wind farm off the coast of Wales that will produce electricity for 400,000 homes; an extension to the Port of Calais which will double the size of Europe’s largest car traffic port; a new motorway link in County Wexford and County Kilkenny in Ireland; and the roll-out of superfast broadband infrastructure in France? They have all been supported by the EU-EIB Project Bond Initiative over the last few years which has facilitated the issuance of over €3.7 billion in bonds1.
As a result of the financial crisis which started in 2007, there was a dramatic fall in funding for much needed infrastructure projects due to the reduction in both government spending and bank financing, which dried up in response to massive pressure on both capital and liquidity. To address this, the European Union (EU) and European Investment Bank (EIB) launched the Project Bond Initiative to stimulate investment in transport, energy, and information and communication technology.
A core objective of the initiative is to increase the share of private sector finance in infrastructure projects and limit public debt growth. One of the potential solutions to fill the infrastructure finance gap is the involvement of institutional investors such as asset managers, insurance companies and pension funds, according to an audit of the initiative published earlier this year2. The key attraction for this investor segment is the potential for an enhanced yield from well-rated investments, which is hard to come by in the current low interest rate environment. Bringing in more institutional investors also provides potential pricing benefits for procuring authorities by increasing the traditional pool of investors.
It’s against this backdrop that BNY Mellon launches its new project agent role to meet the needs of institutional investors and other transaction participants. We feel that we can cater for, and stay ahead of, the evolving needs of our clients beyond the traditional corporate trust roles available to them. Project finance is a new area for many insurance companies and pensions funds, and a project agent can support them through the process which can be a complex one, especially when you’re building a project from scratch, be it a new biomass plant, student campus, road or bridge.
Our project agent team will assist both borrowers and investors in the ongoing management of project information and facilitate guidance on key decisions that need to be made throughout the lifecycle of the project. For example, if you are building a road and half way through the construction phase the contractor goes bankrupt or you need to change the route of the road to avoid going through contaminated land, how do you decide how to proceed? It’s at this stage that the project agent would step in and source an external adviser to present the various options available to investors. In this role we would not be making decisions on behalf of the investors but assisting them by outlining the various options and ensuring that the investors reach a collective decision on how to proceed in a timely and efficient manner.
BNY Mellon has a number of competitive advantages in its role as project agent. We benefit from consistently high credit ratings across all four major credit rating agencies and our primary business is not in securities origination or structuring which means that we act as an independent third party on behalf of our clients.
Project finance is a complex product requiring a team of experienced professionals with a comprehensive understanding of the market and transaction mechanics. BNY Mellon has significant expertise, having worked on various project finance transactions, including renewable energy projects in Turkey, student accommodation in the UK, power plants in the emerging markets and road projects in Western Europe. We look forward to continuing to support our clients in this exciting new role.