Arranger Certification in Project Finance

47 Pages Posted: 5 Mar 2008 Last revised: 9 Jun 2008

See all articles by Stefano Gatti

Stefano Gatti

Bocconi University - Department of Finance

Stefanie Kleimeier

Maastricht University - Department of Finance; Open Universiteit; Univ. of Stellenbosch Business School

William L. Megginson

University of Oklahoma

Alessandro Steffanoni

Interbanca S.P.A. - ABN AMRO Group

Multiple version iconThere are 2 versions of this paper

Date Written: June 1, 2008

Abstract

We examine certification by lead arrangers of project finance (PF) syndicated loans, because PF vehicle companies are stand-alone entities, created for a single purpose, with all valuation impacts contained in the project financing package. Using a sample of 4,122 project finance loans, worth $769 billion, arranged between 1991 and 2005, we show that certification by prestigious lead arranging banks creates economic value by reducing overall loan spreads compared to loans arranged by less prestigious arrangers. Banks participating in these loan syndicates, rather than the project sponsors, are the parties that pay for certification, and do so by allowing top-tier arrangers to keep larger fractions of the up-front arranging fees, though overall fees are reduced when a prestigious bank arranges a loan. Our results are robust to correcting for endogenous choice of loans by prestigious arrangers, and we show that certification is most valuable during periods of extreme financial stress.

Keywords: international corporate governance, bank lending, project finance, syndication

JEL Classification: G21, G32, F34, K33

Suggested Citation

Gatti, Stefano and Kleimeier, Stefanie and Megginson, William L. and Steffanoni, Alessandro, Arranger Certification in Project Finance (June 1, 2008). EFA 2008 Athens Meetings Paper. Available at SSRN: https://ssrn.com/abstract=1102864 or http://dx.doi.org/10.2139/ssrn.1102864

Stefano Gatti

Bocconi University - Department of Finance ( email )

Via Roentgen 1
Milano, MI 20136
Italy

Stefanie Kleimeier

Maastricht University - Department of Finance ( email )

Maastricht, 6200 MD
Netherlands

Open Universiteit

Valkenburgerweg 177
Heerlen, 6419 AT
Netherlands

Univ. of Stellenbosch Business School

Carl Cronjé Drive
CAPE TOWN, Cape Town 7535
South Africa

William L. Megginson (Contact Author)

University of Oklahoma ( email )

307 W Brooks, 205A Adams Hall
Norman, OK 73019
United States
(405) 325-2058 (Phone)
(405) 325-1957 (Fax)

HOME PAGE: http://faculty-staff.ou.edu/M/William.L.Megginson-

Alessandro Steffanoni

Interbanca S.P.A. - ABN AMRO Group ( email )

corso Venezia 56
Milano
Italy
0039-02-7731599 (Phone)
0039-02-7731930 (Fax)

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