Trainee Mani Teherani had never worked on a project finance deal before when he was asked by partner Rachel Speight to join the team at Mayer Brown working on the Boleo mining project. Mayer Brown were acting for the lender group, who were intending to provide over $800 million to fund the construction of facilities to extract copper, cobalt, zinc and manganese reserves located near the town of Santa RosalÃa on Mexico's Baja California peninsula. In the early stages of his involvement, Mani read up on the mining business and got up to speed on how project finance deals work. As he tells us, "even as a trainee, it's very important that you understand the structure of anything in which you're involved and that you get to know the industry with which you're working."
So what exactly is a project finance deal, and how are they structured? Says Rachel: "Project financing usually means the funding of a big infrastructure project - that is, banks lending money to pay for, say, the building of a power plant, a road, or, as with the Boleo project, the development of a mine." Project finance deals share many features with other types of bank lending, but are distinguished by the level of risk involved for the lenders - rather than taking rights over the existing assets of the borrower, the lenders are reliant on the future revenues of the project to be certain they'll get repaid. As Rachel explains: "If you're financing a big toll road, you're taking the risk that people will never use it because it's too expensive. When lending to the mining sector, you're taking the risk that the gold, or other resource, won't be found."
The legal work
Mayer Brown is one of the leading law firms globally in the project finance field, particularly in mining. Rachel tells us: "We've got partners and their teams working in this area here in London and across the U.S. and Asia. We focus on the natural resources sector and particularly the mining sector, where we've been very successful."
But how do lawyers assist their clients involved in project finance deals? Rachel explains: "We give legal advice to the companies who need to raise money to develop a particular project, or to the banks and financial institutions lending to them. Our clients on this deal, the lenders, would not have been comfortable lending nearly $1 billion without lawyers being extensively involved with the contracts, especially because of the risks involved. Our role was to get the lenders comfortable with the risks they were taking on, and to put as many safeguards in the documents as we could to ensure, to the extent legally and commercially possible, that they would get repaid at the time and in the manner that they'd expect." The main documents Rachel and her team worked on were the loan agreements and the security documents, which granted lenders rights over project-related current and future assets. Rachel adds that the team also looked at the underlying project documents (such as those relating to the construction of the mine), the insurance documents for the project, and the documents setting up project bank accounts to ensure that the lenders had adequate rights over these accounts.
Rachel and Mani's different levels of experience meant that their tasks in relation to the Boleo project were also very different. Rachel tells us how she sees her job: "I think a partner has a strategic and commercial role on a project like this one. We drive things forward, keeping in mind the end goals for our client. Our clients are at the heart of everything we do and it's really important that we get alongside them as their trusted advisers and give them the best possible service." A partner must oversee every aspect of the legal work their team has been instructed to complete but, given time limitations and the high cost of a partner's expertise to a client, Rachel has to consider carefully what work she needs to undertake herself and what it makes sense for her to pass on to someone more junior. But although Rachel will delegate significant amounts of work, she is still very involved in the nitty-gritty of her deals: "I work closely on the key documents. I usually get the rest of the team to deal with some of the less strategically important ones, but we always sit down regularly and work out where each of us are in terms of the negotiation process, because all the documents need to fit together at the end. I think that it's very important for a partner to have a handle on what everyone is doing to make sure that we're all working towards the same goal."
The need to ensure the development of junior staff is also an important consideration for Rachel as she decides how to allocate tasks: "Part of my job is making sure more junior lawyers learn as they work on a deal. So I'm keen that everyone should keep getting involved in work that is just a little bit more tricky than what they've done before. The more responsibility the people on the team have, the better they understand the deal, the more useful they are and the more enjoyable they find the work." Rachel stresses, however, that no-one is ever without support: "Ultimately the buck stops with the partner, and I'll always keep an eye on what's going on. If anyone has any concerns, they can always come straight to me to discuss them, and if something is heading in the wrong direction, I will then steer it back on course."
Mani gives us a junior perspective on working on the deal. He was the only trainee on the Boleo team in London, which consisted of two partners, a senior associate and two junior associates. He was given a lot of responsibility, sometimes finding himself being asked to do work of a similar level to that given to the junior associates, but found the experience a very positive one: "My work was challenging, but I never felt out of my depth. Rachel was on top of everything, and supervised all of us in the team, senior and junior, very well." We ask Mani to tell us a bit more about what his work on the deal involved, and hear he was particularly involved in the collection and, where necessary, negotiation of a particular set of ancillary documents, among a wide range of other jobs: "The work that I was doing was really varied, and included drafting, research and liaising with foreign counsel, lawyers on the other side and the client."
The deal posed some challenges for both Rachel and Mani. As on many large project finance deals, the international nature of the transaction caused practical difficulties, as Rachel explains: "One of the key parties was Canadian. We had New York and Mexican law documents. Aspects of the transaction were done under Luxembourg law because of the tax structure used. Some of the lenders and the borrowers were based in South Korea, so we had Korean documents too. A couple of the banks were German, so there were also German lawyers involved. So we had to deal with different parties in different time zones and get them all on the same calls or responding to emails in certain timeframes, which was very tricky." Frequent physical meetings in Washington D.C. and London were often the best way to deal with this issue.
The diversity of the lender group, which comprised both commercial banks and quasi-governmental export credit agencies, also caused some problems for Rachel: "The lenders didn't all have exactly the same interests in the project. Some were lending more money. They had different viewpoints on some points. So we had to juggle these competing interests to ensure that all the lenders were equally well represented and happy with the deal that they were getting." Doing so occasionally meant using separate sets of lawyers for segments of the lender group, sometimes within Mayer Brown and sometimes brought in from outside the firm, which brought up legal, professional conduct and practical issues for Rachel to consider.
Mani faced organisational challenges while working on the deal too: "On a large transaction like this one, you learn a lot about managing your work. It was really important that I was on top of my game because sometimes I would receive 40 to 50 emails per hour, and then it's really easy to overlook the important ones if you're not careful." Mani explains how the importance of good organisation became even more crucial during the final stages of the deal. "The closer we got to the completion dates, the longer my working hours became. But I was impressed with the efficiency of the team. We all put in long hours at times, but I never had to do an all-nighter, or come into the office at the weekend - though I would be checking my Blackberry then, just to make sure that I wasn't missing any important emails."
The deal came to a conclusion with the execution of documents in autumn 2010. Many of these were signed at a physical closing in Washington D.C., that is, a meeting of all parties for this purpose. Such an event is relatively unusual - it's much more common in finance deals to have electronic closings, where signed documents are emailed between lawyers on the understanding that originals will follow by courier. Mani didn't get to go to Washington D.C. himself, but was kept busy back in London: "The week of the closing was extremely time-pressured and the volume of emails went up by 200 per cent, so I had to be careful not to forget anything. But everything worked very efficiently, the deal closed successfully - and it was fun! It's a great feeling at the end to see that all of your hard work has paid off."
We ask Mani to reflect a little more on what he enjoyed about the deal, and project finance work in general: "One of the reasons I joined Mayer Brown was because I wanted to work on big-ticket, cross-border transactions, and this deal fitted that description perfectly. We were dealing with so many different parties with so many different positions. And then there's the value of the transaction - nearly $1 billion, which was the most exciting part of it, I think."
When we ask Rachel the same question, she highlights the sense of team accomplishment that she gets from seeing deals, which in project finance often last for a number of years, go from genesis to completion: "I really like the way in which you get to build up very good relationships with lawyers on the other side. You come to feel that you're all acting on one team, because ultimately you all want the same aim - to get the project finished." Like Mani, Rachel also enjoys the excitement of large-scale international deals: "We work in all sorts of fantastic jurisdictions, which I love. One of my colleagues is going to Kabul because we're working on a deal with the Afghanistani government. We just closed a deal in Eritrea, and now I'm working on a couple of projects in Mauritania." The nature of project finance work also means that lawyers in this field gain a huge amount of knowledge about a particular industrial or public service sector plus, as Rachel tells us, a certain satisfaction in having played a role in the creation of something tangible: "My work is not just about money moving through the system. I can go to, say, the roads that we finance and touch them - and know I've been involved in a project that has had some benefit to a community."