Deregulation is rapidly reshaping the global energy industry, and Enron Corp. is one of the companies guiding its future. Amid the confusion, one thing is certain: Success will require deep pockets.
A former senior director at Continental Bank, Andrew S. Fastow, Enron's senior vice president for finance, has kept the capital markets busy, raising more than $5 billion for Enron in dozens of financings last year.
Since joining Houston-based Enron in 1990, Mr. Fastow has helped it grow to about $15 billion of assets, with integrated global business lines in natural gas, electricity, and other forms of energy. The company led the development of the natural gas trading industry and is now poised to do the same for electricity.
With more than 70 commercial banking relationships-divided among three tiers of banks-and more than 10 investment bank relationships, Mr. Fastow has a front-row seat from which to observe the industry. In an interview Mr. Fastow spoke with American Banker about the energy industry, Enron's banking relationships and the commercial and investment banking landscape.
Is your industry well served by banks today?
FASTOW: The energy industry is undergoing a radical restructuring right now. No banking institution, commercial or investment, is structurally organized in a manner to serve it appropriately.
For example, a bank will have separate project finance, utility, energy, and pipeline groups. The winners in the future will be the banks that have bankers, in particular, that can bring all these different groups together and build institutional support to get a very complex deal done.
More and more, we've found that the winners among the banks are the ones that have excellent relationship managers that not only understand Enron but understand how to build consensus within their own institution.
What does Enron look for in its primary banking relationships?
FASTOW: The single most important thing we are looking for is banks and bankers that have creative, value-added ideas.
No. 2, they need to be global banks today. We're operating all over the world, so they need global capabilities and knowledge of the different capital markets around the world.
Third, they typically need to have excellent syndication capability.
Fourth, we expect our tier-one bank to have meaningful senior-level contacts. We want to know that the bank understands our business and understands management. That's important to us in developing comfort that the bank will in fact be able to deliver the type of transaction we're looking for under the basic terms and conditions we're looking for.
And fifth, they need to be able to write a big check. Not just to underwrite a transaction that we may be doing in the bank market but if there's ever a special occasion. We're not looking for firm commitments, but we want to know that we've got enough liquidity out there.
How do you select banks to lead your syndications?
FASTOW: Our commercial banks have tended to do all of the bank syndication deals. We have not yet had an investment bank lead a syndication deal, although we would not rule that out. The investment banks have tended to do the public equity deals.
Who has handled Enron's M&A activity?
FASTOW: For the most part, investment banks. We are not predisposed to use one institution over another. We just tend to find that investment banks focus on this more than commercial banks.
Are there some products or services you use commercial banks for exclusively?
FASTOW: No. There's nothing that we will view as exclusive to commercial or investment banks. However there is, in my opinion, a convergence occurring between them.
Commercial banks tend to be private-credit-market and credit-focused. Investment banks tend to be more 144A-market-focused. The question will be, going forward, which markets are best suited to buy your deal. Depending on which market the deal is best suited for, the commercial or investment bank might have an advantage. If the public, or 144A market, is pricing transactions aggressively, then investment banks will tend to have an advantage, and vice versa.
The big question will be which institutions are willing to use their proprietary capital to gain the competitive advantage and become the dominant credit risk intermediary.
If commercial banks want to become a one-stop-shop, they will have to be willing to say that they can syndicate paper with these terms and conditions to a nonbank market, the institutional market.
How important is creativity in your banks?
FASTOW: We will always be predisposed to give the business, in terms of syndications or private placements, to the institution, regardless of the type, that brings us creative and innovative ideas. That is our No. 1 criterion because that will help us increase the value of our company. They have to be competitive on the syndication side, obviously, but assuming all of those banks can be generally competitive, the creative ideas tend to win the business.