While elementary in concept, the market is reminding us that an “A” sponsor and a “B” project overrides an “A” project and a “B” sponsor. In search of investment volume over recent years, the first round of questions probed by capital generally focused more on deals and less about sponsors. More recently, we have been experiencing the first round of questions to be centered firmly on the sponsor, examining the capabilities and capacity to execute the proposed business plan. Cost overruns, missed timelines, and sub-standard reporting have been masked by generally favorable revenue results. These same mistakes made in a flat or declining environment, however, will lead to distressed scenarios. A few important questions, while sensitive in nature, are relatively straightforward and represent a healthy stance for investors and lenders to take:
- what is the relevant track record?…..(obvious)
- how strong is liquidity and balance sheet?……(can be demanding even for non-recourse loans)
- how diversified is the management team?…..(navigating market complexity is requiring both range and depth of skill set)
- how sophisticated are back-office procedures and reporting capabilities?…..(demonstrating aptitude, transparency, and compliance encourages capital to champion a project)
While collectively this can be a stringent set of requirements, addressing and resolving these questions as needed should take precedence over the merits of a given deal.
Dave Kidder – President and Managing Director at Landmark Capital Advisors