JLS Capital Strategies, LLC

Thought Leadership

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Learning from Venus

Even 50 years into the women’s liberation movement and even with increasing numbers of women at the negotiating table, women are under-represented at senior levels of finance companies, and views about how to conduct finance and business negotiations remain decidedly male-dominated.

When I first started at the US Export-Import Bank, my wife would ask me regularly whether I had “kicked banker butt.”

Donald Trump’s high-handed The Art of the Deal approach continues to typify conventional wisdom about deal making.  To succeed, women need to be as or more aggressive than men to be taken seriously.  In an upcoming film at the Sundance Festival, the film Equity about female investment bankers is being heralded as “the first female-driven Wall Street film.”  The female lead characters are tough, aggressive and even ruthless.

Both men and women can and often should be tough and aggressive, but the continuing focus on attributes typically associated with men too often sends the message that, to succeed, women need to be men.  

This type of conventional wisdom leads all of us –- men and women -- to overlook that four of the most important and undervalued assets in project finance involve skills more commonly associated with women rather than men. They are juggling a dynamic deal environment, initiating a dialogue, seeking consensus and win-win situations, and listening carefully to others.  As with being tough and aggressive, these four skills are not the exclusive purview of either men or women –- only more commonly associated with women –- and something we all benefit from learning.

Foundations

My way of thinking about these skills and my personal basis for a female-centric focus come from my experience as the former head of the project finance division at the US Export-Import Bank during a period when the bank was led by female managing directors and had just emerged from a period of being run by one of the most important women in project finance. I am also the father of two daughters who can do anything to which they set their minds.   My oldest daughter reminded us at her bat mitzvah that a girl can do anything a boy can do, and do it in high heels.

A review of the basic project finance concept is helpful to understanding why project finance benefits from strengths commonly associated with women.

Limited or non-recourse project finance is a form of finance in which financing is extended on the basis of future cash flows of a new project. Banks lend hundreds of millions of dollars or even billions of dollars to projects that are often just a site with nothing built on it.  I used to refer to it as financing something from nothing, but it is far from nothing, as project finance involves complex financial analysis, extensive documentation, and substantial equity at risk.  Project finance is not for the faint of heart and it is very time-consuming, but it has produced good outcomes and is great fun for us deal junkies.

There are at least four skills typically considered female strengths that are important for project finance.

Juggling

The complex set of relationships involved in a project financing requires a lot of mental juggling.

Everything in a project financing is related to everything else, and one has to hold a lot of constantly changing terms and concepts in one’s mind, all at the same time. The commercial relationships governing project construction have a bearing on how the project will be operated, which is tied to the supply of fuel or other critical materials.  The strength of the sponsor has a bearing on project risk, and all of this affects how much money is needed in reserves, which ties into project cost and debt needs, which then affects debt coverage and equity needs.  These all affect debt covenants, which in turn affect project equity cost and returns.  

The details go on and on and back and forth, all the way to specific conditions and the exceptions to these conditions and the carve outs to the exceptions.  

One must be cognizant of the impact of individual elements of a deal when making changes to another, and maintain a mental image of a dynamic set of inter-connected relationships.

At the risk of generalizing, by and large women have become better jugglers than men. The typical working mother makes sure that kids get where they need to be, do their homework, and eat healthy food, all while succeeding in full-time jobs in the formal workplace.  Many men’s idea of juggling is reading emails while on a conference call. 

Dialogue

Project finance thrives on and requires a great deal of dialogue.  

Every deal is different and no one individual is ever the master of all one needs to know. The only way to move forward constructively is to ask questions, raise issues for discussion, seek expert advice, and then ask more questions.  

I am constantly surprised by how little emphasis is placed on the process of dialogue and how much is missed in all stages of the deal process as a result. Once during due diligence on a petrochemical deal in Asia, banks were set to accept feedstock supply risks without even exploring what kinds of support strong sponsors might offer -- until our side broached the question.  A dialogue ensued, and the issue was resolved.  

During the documentation stage of another deal, the borrower wished to avoid a prepayment penalty and argued on the basis alone that the borrower did not want this penalty. The borrower ultimately relented on the point, figuring (incorrectly) that a prepayment would never be made.  The borrower never initiated a dialogue and never explored the reasons for the penalty.  If the borrower had done so, then both sides would have realized the penalty was a mistake, an unintended consequence of legal drafting that the lender would have corrected had there only been a discussion of the underlying circumstances.  Only much later and at a cost of time and expense to the borrower did the parties revisit the issue and remove the penalty.

Consensus

Negotiation is rarely about winning and losing and this is especially true in project finance, where deals have long lives and can be likened to long-term commitments or relationships.

If one person’s win translates into someone else’s loss, then the long-term relationship becomes unstable and the deal may fail. It is better to engage in a process to understand and seek mutual long-term gain.

Erik Woodhouse’s Political Economy of International Infrastructure Contracting, Lessons from the IPP Experience provides a very useful way of thinking about winners and losers in project finance.  Woodhouse organized outcomes on independent power projects into four categories according to binary outcomes of good or bad for two parties: foreign governments and private developers.   About three quarters of all deals were clustered around one of the four categories, deals that were good for governments and developers. 

The best way to get to that outcome is through a respectful process of understanding and managing everyone’s interests. Seeking consensus and win-win outcomes are better for the parties in the long term. 

Listening

Careful listening is critical to project finance. As with initiating dialogue, I am constantly amazed by how much is missed by failure to listen carefully to the totality of what the other side is saying.  

The interests behind the positions one side articulates are often as or more important than the answers themselves. That is where one finds the basis of a deal.   A lender may be asserting the need for a sovereign guarantee, but the key interests may be credit support that could come from a private party or government participation, which may come from a public non-sovereign.  A lender may be concerned mostly about liquidity, but may assert low debt leverage as a way to get there, which is a very inefficient way of addressing liquidity concerns.  

The point is not that all women are better listeners and native-borne jugglers of project finance or men cannot be successful project financiers. Rather, all types of deals -- and especially project finance deals -- involve a long-term process with several parties and complex relationships.  Skills and attributes most commonly associated with women -- skills that are typically undervalued -- are critical to success. 

Miki Flamenbaum