The following is an excerpt from Practice Perspectives: Vault's Guide to Legal Practice Areas.
Vijaya Palaniswamy, Partner, and Andrew Compton, Counsel—Project Finance
Vijaya Palaniswamy is a partner in Linklaters’ Global Energy and Infrastructure practice and leads the team’s work in the Americas. He regularly advises project sponsors, marketing companies, commercial lenders, multilateral development banks, and regulated entities in the acquisition, development, structuring, and financing of energy and infrastructure assets. He graduated with an A.B. and B.S. from the University of Georgia, earned his Master of Arts in Law and Diplomacy (M.A.L.D.) from the Fletcher School at Tufts University, and holds a J.D. from Harvard Law School.
Andrew Compton is a counsel in Linklaters’ Global Energy and Infrastructure group based in New York. He represents export credit agencies, commercial lenders, project sponsors, multilateral development agencies, and other project participants in a wide range of domestic and cross-border project financing transactions, with an emphasis on the power (including renewables) and infrastructure sectors. Andrew spent a number of years based in Hong Kong and Tokyo. He studied public policy and management at the University of Southern California and holds a J.D. from Cornell Law School.
Describe your practice area and what it entails.
We represent lenders or borrowers in the development and financing of projects that will be financed on a limited-recourse basis, also called project finance. This type of financing is typically used to build infrastructure or energy assets that require significant upfront capital and that provide a steady stream of revenue over decades, like a toll road or power plant.
What types of clients do you represent?
On the lender side, we act for commercial banks, export credit agencies (government-based financial institutions), and multilateral development agencies such as the World Bank. We also act for borrowers, who are owned by entities called “sponsors.” Sponsors are anything from private equity funds that are involved in energy and infrastructure transactions to developers or utilities that operate assets. Increasingly, we work with funds that are involved in the energy and infrastructure space, both in Latin America and the U.S. We have a very diverse and international client base—from working on the expansion and financing of the international airport in Santiago, Chile, to a domestic renewables transaction.
What types of cases/deals do you work on?
We’ve balanced our traditional energy and infrastructure work (e.g., gas power plants, LNG terminals) with work in the renewables space. Renewables are becoming an increasingly important source of energy generation from a practical and environmental perspective in the U.S. We helped to shape and grow this sector in Europe, and we hope to do the same in the U.S. by harnessing the global strength of Linklaters’ Energy and Infrastructure practice.
In the last 18 months, we’ve worked in the solar space with a fund in New York called C2 Energy that distributes solar projects (rooftop and other small-scale projects where the offtaker is an office park or “big box” retail store). We’ll be working with C2 on the development and financing of more than 100 such projects, to be sited at Walmart stores across 12 states.
We’ve also acted for Ørsted (formerly DONG Energy), a Danish developer of offshore wind farms. We helped them grow in the U.S. through a joint venture with Eversource Energy, one of New England’s largest energy providers. Highland Pellets in Arkansas is another good example of a client trying to find more environmentally friendly solutions: they’re a biofuels developer that’s now using wood pellets as an alternate fuel to reduce coal consumption. In Latin America, we’ve been active with more traditional photovoltaic solar and wind developers.
How did you choose this practice area?
Vijaya: I was focused on doing something involving development, technology, and human rights. With that in mind, before starting law school, I completed internships with the Office of the High Commissioner for Human Rights and the World Intellectual Property Organization, both in Geneva. I realized that project finance brought together creative financial and corporate structures with the applied development perspective I was looking for. In addition to the intellectual rigor of practicing law, project finance allows us to play a role in bringing power to a city, providing clean water to a region, or expanding an airport that enables a nation to access the world. The ultimate benefit of the work we do is what guided me to a career in project finance.
Andrew: When I started practicing law, I had an opportunity to go to Asia for a three-to-six-month secondment. At the time there were two types of big ticket deals in Asia—Chinese capital markets work and project finance. I didn’t speak Chinese, so capital markets wasn’t a logical route for me! Luckily, I was naturally drawn to project finance due to the complexity of the deals and the international makeup of the major players in the space. On top of that, I found the work fascinating because what we do directly impacts the development of companies globally. I’ve genuinely loved each day in the project finance space since. I ended up spending 8.5 years in Asia, and in the past 11 years, I’ve been privileged to work on deals on five continents.
What is a typical day like and/or what are some common tasks you perform?
Vijaya: It depends on how advanced the projects are that we’re working on and where they’re located, as there are several stages to each one. At the beginning, you’re working closely with the sponsors to build a commercial structure that will be lender-friendly. After that, you engage with the lenders to work through the commercial structures that will be in place for the next 10 to 30 years and ensure that they meet the bank’s requirements while preserving the sponsor’s objectives and ability to make a competitive return on investment. After financing, you enter the construction phase. We’re relatively quiet during that period, unless there are disputes in litigation. Big projects will often have expansions or follow-up work, so you can live with a project for years. We are called in from time to time to help with new developments on a project started in 2004.
Andrew: No two days are the same. What’s challenging about being a lawyer, but also what I love, is that you can show up having a plan for the day that can get completely sidetracked by something that happens on a deal. On a normal day, I have a mix of conference calls and documents to review; we’ll often have deal calls with 30 to 40 people on the line or in-person meetings to negotiate the specifics of a deal. I love the fact that we’ve got a great team—there’s a ton of energy when I come in every day. It makes it an exciting place to work.
What training, classes, experience, or skills development would you recommend to someone who wishes to enter your practice area?
You need to know about secured transactions because everything we do is ultimately secured in favor of the lenders, whether U.S. or abroad. An understanding of bankruptcy, creditor rights, and protections is also helpful. Finally, a foundation in contracts and corporations is useful. You’re setting up companies and agreements that intend to run independently for 10 to 30 years, so understanding joint venture structures for development and long-term corporate governance will all be helpful.
Ultimately, there’s no book or person that’s going to teach you how to do a project finance deal. An eye for detail and being willing to throw yourself in and work hard with a team is how you’ll best learn to structure a project finance 101 transaction. And that structure is something you can apply to an energy deal (e.g., powerplant), infrastructure deal (e.g., rail line), or anything else that’s financed on a limited-recourse-project basis.
What do you like best about your practice area?
Vijaya: No two projects are the same. Even an expansion of an existing project brings new challenges. You have general principles and market conventions—you start with the same toolkit for every project, but how you apply those tools is different every time. There’s always something unique about each project, which keeps things fresh and mentally engaging.
Andrew: The international aspect of practice—it takes people from around the world (banks, equity players, contractors, host governments)—is something I find quite exciting. I enjoy creating something novel, something that hasn’t been done before, and something complicated that you need to structure in a commercially creative yet bankable manner so you’re able to get the deal across the line for your clients.
What misconceptions exist about your practice area?
Vijaya: One of the early misconceptions is that project finance is driven by oil and gas. Historically, a lot of big projects were in the Middle East or involved the oil and gas industry. Nowadays, it’s also being used for social infrastructure and renewables. It hasn’t been employed for domestic social infrastructure in the U.S. as much as in certain other countries, but we’re starting to fund and put forward more public-private partnership (PPP) structures. The U.S. is playing a bit of catch-up with other countries on the social infrastructure front, but we’re moving in the right direction.
Andrew: Another misconception is that it’s just banking work. It is a form of banking, but to be a good project finance lawyer, you need to understand how commercial contracts for the transaction are put together. You do that by getting experience negotiating, reviewing, and drafting commercial contracts. On a power deal, you might have a concession agreement, an EPC (engineering, procurement, and construction) contract, a power purchase contract, and an operation and maintenance contract. You need to build financing that’s responsive to that structure and have a holistic view that includes the construction side as well as the financing side.
What are some typical tasks that a junior lawyer would perform in this practice area?
Junior lawyers are a critical part of our team. They manage processes, draft security documents and credit agreements, and own the closing checklist and deliverables—it’s a wide spectrum. We don’t have first-, second-, or third-year-specific work—first years are almost always working on substantive documentation.
What kinds of experience can summer associates gain in this practice area at your firm?
Last summer, we closed a solar portfolio, working with a summer associate and a junior associate to get it successfully completed. We also worked on a series of form documents—project finance loan agreements and ancillary documents. There were five or six summer associates involved in that process, which was a big undertaking for the team over the course of a year. As we do with junior associates, we fully integrate summer associates into the deal team and give them real-world experience and responsibilities from day one.