Our client, a Landesbank and part of Sparkassen Group, wanted to add project bonds to their structured finance portfolio to provide complementary financing opportunities for project companies in industries such as renewable energy. Such change not only gives the origination side of structured finance the chance to go for bigger financing engagements, but also creates sought-for high interest income vehicles for institutional investors (i.e., the bank’s clients such as pension funds or insurance companies). Additionally, it generates further revenues for the bank while consuming fewer capital costs. Capco joined the bank’s Market Strategy team to support the conceptualization and operationalization as well as the new product process.
The Landesbank has traditionally been strong in structured finance and project loans. Leveraging this expertise by adding project bonds to the product portfolio was the natural next step in developing the project finance offering further. In addition, there was significant demand from project companies for project bonds as a means of financing and from institutional investors for alternative investments in bonds, yielding better interest income.
HOW WE DID IT:
- The first phase included conceptualizing the project bond characteristics in an MVP approach. This was achieved by conducting multiple workshops with colleagues from the structured finance / origination, and markets / institutional sales departments.
- The results were documented in a written concept which provided guidance for the relevant departments during the new product process.
- The new product process was successfully closed after the first part of the project (early 2022); in the second part additional product features have been introduced into the concept along with respective pricing and alignment with risk control department.
- Starting in October 2021, the project was completed within nine months, by the end of June 2022.The project team from Capco side included one Managing Principal and one Consultant.
WHAT WE DELIVERED:
- With Capco’s support, the Landesbank successfully conducted the new product process for the introduction of project bonds and is now able to hold and trade this new asset class.
- Alongside the new product process, a comprehensive concept was documented and handed over for future reference and use.
- The Capco team also developed a pricing and risk evaluation method for project bonds.
- The Landesbank is now able to materialize additional revenues from structuring and placement fees.
- Over the course of the project, the engagement was extended to cover additional optionalities in the project bond structure from a risk and pricing point of view.
- The Capco team had a very fruitful and close collaboration with the involved stakeholders, without major difficulties or hurdles.