Citigroup's project finance team is attempting to organize key project finance lenders into pooling portfolio data to present to the Basel Committee this month to prove to the Swiss-based body that project loans have significantly higher recovery rates than those on corporate loans. "The accords may be five years away, but the earlier you start, the more of a jump you have on the situation," said one project finance banker, noting, "clients and banks should be worried. If they [The Models Task Force] rate the project finance loans as junk, the pricing will go through the roof," he added.
The Models Task Force met last week in London and one of the topics discussed is said to be project finance, according to a banker. Some banks have already provided data to Basel, but Citigroup wants a much greater concerted effort in order to ward off the threat of severe capital treatment for specialty loans. Approximately 20 banks have been approached to provide portfolio data, and early signs indicate project finance loans have significantly higher recovery than corporate loans. The recovery rate on project loans is about 57% and only 33% on corporate assets, according to one banker. Calls to Citigroup bankers were not returned and project finance players at other banks declined on the record comment.