Why Structured Debt Advisors Do Not Work for Free

Structured debt execution requires expensive people, not just introductions

A surprising number of financing enquiries eventually arrive at the same request. The sponsor wants the advisor to review the transaction, redesign the capital structure, identify problems, prepare the financing strategy, speak with lenders, negotiate terms and coordinate execution without receiving meaningful compensation until the transaction closes.

In other words, the sponsor wants a professional advisory firm to finance the advisory work itself.

That is not how serious structured finance operates. A structured debt mandate requires experienced professionals who understand credit, documentation, financial modeling, risk allocation, banking processes and lender underwriting. Those professionals have a market value whether the financing ultimately closes or not.

A successful mandate is therefore not created by forwarding a pitch deck to a mailing list. It is created by converting a commercial proposition into something that a credit committee can understand, diligence and approve.

What qualifies someone to execute a structured debt mandate

Good structured finance professionals are difficult to replace because the work sits between several disciplines. A useful advisor needs more than sales ability and more than a database of lenders.

The lead advisor needs to understand how lenders assess leverage, collateral, cash flow, repayment capacity and downside protection. The person must understand how contractual terms affect credit risk. They need to identify which financing structures fit the transaction and which structures merely look attractive in a presentation.

In trade finance this can require knowledge of letters of credit, guarantees, receivables, inventory, borrowing bases, payment waterfalls, insurance, collateral control, shipping documentation and international banking rules. It also requires an understanding of sanctions, KYC, AML and trade-based financial crime risks.

In project finance, the skill set becomes wider. Advisors need to understand financial models, debt sizing, DSCR, construction risk, completion support, EPC contracts, operating assumptions, concession structures, offtake agreements, permits, insurance, technical due diligence and security packages.

Senior professionals also need judgment. They must know when a transaction can be repaired and when it should be rejected. They must know what information a lender will challenge before the lender asks. They must also manage negotiations without destroying the economics that made the transaction financeable in the first place.

These are not commodity skills. People who can perform this work well are sought by banks, private credit funds, investment firms, corporates, law firms, consulting firms and other advisory businesses.

What good structured finance professionals actually cost

Hourly rates vary by jurisdiction and assignment. The table below represents practical budgeting ranges for experienced professionals capable of institutional work. These are not the cheapest people available online. They are the people we would be comfortable putting on a serious transaction.

External law firms and highly specialized technical advisers can cost considerably more. Urgency also matters. Asking someone to abandon another assignment to solve a transaction problem immediately has an economic cost.

Why we use an agency model

Financely does not try to employ every possible specialist permanently. That would make little economic sense because transactions require different expertise at different stages.

We maintain core capabilities and bring additional professionals into a mandate when their expertise is required. A project may need a modeler this week, specialized counsel next week and an independent technical advisor later in the process. Another transaction may require none of them.

This is effectively an agency model. We assemble the appropriate team around the transaction rather than carrying every specialist on payroll indefinitely.

The specialists are not sitting around waiting for us to provide something to do. We compete for their time against banks, funds, corporate clients, law firms and competing advisory mandates. A good project finance modeler may have several assignments available. A good credit professional may be supporting a private lender. A specialist lawyer may have hundreds of thousands of dollars of active client work in front of them.

A retainer therefore does more than compensate an advisory company. It allows the firm to reserve capacity and mobilize people who have other profitable uses for their time.

The real workload behind a routine trade finance mandate

Consider a relatively straightforward structured trade transaction. The buyer, seller and commercial contracts already exist. The goods are financeable and the financing request is credible.

Even this transaction must be understood before it can be distributed. The advisor needs to review the purchase contract, sale contract, payment mechanics, shipping route, margins, working capital cycle and proposed collateral. Counterparties need to be screened. The financing structure then has to be designed around the actual movement of goods and cash.

Depending on the structure, the commercial parties may include the importer or buyer, exporter or supplier, freight operator, insurer, inspection company, warehouse operator and collateral manager. The financing side may involve the issuing bank, advising bank, confirming bank, nominated bank, discounting bank, private credit fund or another liquidity provider.

Counsel, compliance professionals and insurance specialists may also become involved. Commodity transactions can require additional vessel, sanctions, title and collateral checks.

At senior professional rates, a clean trade finance mandate can therefore consume $20,000 to $50,000 or more of direct professional capacity before considering firm overhead, databases, administration, external reports and the commercial risk of running the mandate.

That is why trade finance execution cannot rationally be sold as free work in exchange for the possibility of a future commission.

Project finance requires an entirely different level of preparation

Project finance is considerably heavier. The financing does not sit in isolation. It depends on whether the entire project architecture works.

The sponsor and project company sit at the center. Around them may be equity investors, senior lenders, mezzanine lenders, DFIs, export credit agencies and insurers. There may also be a facility agent, security trustee, account bank and hedge provider.

On the operating side, lenders may examine the EPC contractor, O&M contractor, equipment suppliers, offtaker, feedstock supplier, concession authority and government counterparties.

Then come the advisors. Sponsor counsel and lender counsel review the legal structure. Financial advisors build and test the financing case. Technical advisers examine construction and operating assumptions. Environmental and social specialists assess relevant risks. Insurance advisers review coverage. Tax advisers examine the structure. Market consultants may validate demand or pricing assumptions.

A lender is not financing the PowerPoint presentation. It is financing the contractual and economic system underneath it.

A relatively clean project can therefore consume $75,000 to $200,000 of professional resources before financial close. Complex cross-border projects can require far more. Transactions involving several jurisdictions, government concessions, ECAs, complicated security packages or difficult technical risks can consume hundreds of additional hours.

This does not include every external project development expense. Feasibility studies, environmental work, legal opinions, engineering studies, valuations, surveys and other third-party reports can materially increase the development budget.

A serious sponsor budgets for preparation before asking for capital

For planning purposes, we think a sponsor pursuing a reasonably clean financing should be prepared to allocate roughly 1% of project value to advisory, preparation and execution. Complex cross-border mandates can justify a budget closer to 3% once specialist work and transaction complexity are taken into account.

These figures are planning benchmarks rather than mandatory fee schedules. Broader project preparation costs can run considerably higher. The principle matters more than the precise percentage. Capital raising requires capital.

This budget does not need to be handed to one advisor on day one. Development expenditure normally occurs in stages. What matters is that the sponsor has enough capital to continue paying legitimate expenses as the project moves through diligence.

If a sponsor cannot absorb an unexpected legal invoice, model revision, technical report or additional diligence requirement, there is a larger capitalization problem. Institutional transactions routinely change during underwriting. A sponsor whose entire development plan fails because the budget increases by $10,000 or $25,000 is not properly capitalized for a transaction worth tens of millions of dollars.

$700 million of projects with almost no money allocated to execution

Financely receives more than $700 million of proposed projects and financing requests in some months. Yet the combined readily available advisory budget attached to a large portion of those enquiries can be less than $100,000.

Put that in perspective. $100,000 against $700 million represents approximately 0.014% of project value.

A 1% preparation and advisory allocation on $700 million would equal $7 million. A 3% allocation would equal $21 million.

We are not suggesting every project needs either amount. The comparison illustrates the gap between the size of the financing people say they want and the amount they have actually allocated to obtaining it.

The internet has made it cheap to look like a sponsor

The internet dramatically reduced the cost of appearing sophisticated. Anyone can create a company, download templates, assemble several PDFs, produce a polished pitch deck and describe themselves as the sponsor of a $100 million project.

None of those things prove sponsor capacity.

A real sponsor controls the project and takes development risk. The sponsor contributes capital. The sponsor pays consultants. The sponsor advances permitting and contracts. The sponsor deals with delays and additional expenses. The sponsor remains responsible when the first financing strategy needs to be changed.

A collection of PDFs does not replace any of those responsibilities.

Unfortunately, the least-capitalized promoters are sometimes the most demanding. They ask advisors for unpaid analysis. They request lender lists without a mandate. They want financial structures developed before engagement. They promise enormous success fees while refusing relatively small retainers. When an advisor refuses, some resort to criticism or accusations rather than confronting the underlying problem.

The underlying problem is usually simple. The project has no funded development plan.

If you cannot fund development, you may not be the right sponsor

There is nothing shameful about having a good project and insufficient capital to develop it. The mistake is pretending the capital problem does not exist and asking professional firms to absorb it.

If the project is genuinely attractive but the current sponsor cannot fund the development process, bringing in a better-capitalized co-sponsor may be the correct solution. Selling development rights may also be rational. Another developer may have the balance sheet, staff and professional budget required to move the asset forward.

Ownership of an idea does not create an entitlement to everyone else's labor.

The market does not care who first imagined the project. It ultimately rewards the party capable of organizing land, contracts, permits, equity, advisers, financing and execution into a functioning transaction.

Other high-value professionals do not finance their clients either

Nobody expects a project finance lawyer to work for six months and receive payment only if the bank approves the loan. Clients pay retainers and legal bills.

Engineers charge for technical work. Accountants charge for financial work. Tax advisers charge for structuring. Environmental consultants charge for studies. Architects charge for designs. Surveyors charge for reports. Management consultants charge for their time.

Debt advisors are professionals too.

Transaction advisory commonly combines an upfront retainer or work fee with a success fee payable when financing closes. The two payments compensate different things.

Calling this arrangement unfair misunderstands how professional-services businesses work. The advisor still incurs labor costs if a lender ultimately says no. The modeler still worked. Counsel still reviewed documents. Credit professionals still analyzed the transaction. Distribution staff still approached the market.

A lender rejection does not reverse those hours.

Free advisory work creates the wrong incentives

There is another reason we do not believe in extensive unpaid structuring. It encourages people to submit projects they have little commitment to developing.

When there is no financial cost to asking, the rational strategy becomes asking everyone. The promoter can send the same materials to twenty advisors and request twenty versions of the financing strategy. Every advisor bears the cost while the promoter bears almost none.

This creates adverse selection. Serious sponsors are mixed with people collecting free opinions, free lender names, free models and free consulting.

Requiring an advisory budget filters for commitment. It does not guarantee that a transaction will close. It establishes that the sponsor is prepared to invest resources in making the transaction financeable.

The market eventually exposes projects built on free labor

Promoters who refuse to pay anybody can sometimes keep a project alive on paper for years. They move from advisor to advisor. They change lenders. They replace consultants. They announce new partners. They produce another deck.

Eventually the process stops.

The lawyer will not continue without payment. The engineer will not issue the report. The lender will not underwrite incomplete information. The institutional investor will ask how much sponsor equity has actually been committed. Another advisory firm will reach the same conclusion as the previous one.

The market is very effective at eliminating business models that depend permanently on extracting unpaid professional labor.

There is no durable place in institutional finance for free-riding. A sponsor either develops the financial capacity to execute, brings in partners who can, or eventually gives way to someone capable of moving the project forward.

Our position is straightforward

We are happy to be paid partly for success. Alignment matters and performance incentives make sense.

What we will not do is finance someone else's project by donating the professional labor required to develop it.

Sponsors who approach Financely should expect to demonstrate both transaction quality and the financial capacity to execute the mandate. That includes an appropriate advisory budget and the ability to absorb reasonable additional costs when underwriting identifies work that must be completed.

That is not a barrier placed between projects and capital. It is part of what separates a financing request from a financeable transaction.