Infrastructure Debt Opportunities – February 2013

by Paul Bishop

  • 06 Feb 2013
  • INF

Infrastructure debt investment has long been the preserve of large banks with balance sheets able to cope with the rigour and scale of infrastructure debt provisions. However, incoming capital adequacy requirements, such as BASEL III, are pushing banks out of the sector and have allowed non-traditional lenders into the space. Additionally, historically low interest rates, volatile equities, and depressed fixed income yields are key drivers in pushing investors to look for returns on capital in less traditional areas. Infrastructure debt is one of these areas. The long term, inflation-adjusted, stable and predictable returns of infrastructure debt offer one such avenue that institutional investors and asset managers are examining.

Historically, non-traditional infrastructure debt financing has been undertaken utilizing a private equity structured unlisted vehicle. Preqin is currently tracking 54 unlisted infrastructure debt funds which offer debt and/or mezzanine financing as an investment strategy. Of these 54 vehicles, 39% offer debt or mezzanine investments as their only investment strategy, six of which are currently on the road seeking $7.1bn in capital commitments. Darby Overseas Investments is a key firm active in this arena, having raised three debt funds totalling $442mn. Allianz Global Investors has also recently broken into the space and is currently working on raising a £1bn debt fund that will focus on the UK and provide debt financing to a wide range of both economic and social infrastructure projects. There are currently 14 vehicles seeking capital that include both equity and debt investments as part of their investment strategy, which are seeking an aggregate $8.8bn in investor commitments.

Other methods of accessing the infrastructure debt space have come in the form of secondary acquisitions of project finance loans from banks looking to offload these assets. Larger institutional investors have seen the potential from these assets and have awarded mandates to firms to source secondary acquisitions of these types of loans. PensionDanmark acquired a $750mn portfolio of project finance loans from the Bank of Ireland in Q2 2012 via a mandate awarded to JPMorgan. Indeed, more sophisticated and large-scale investors looking to source exposure to these assets have begun to award mandates focused on these assets, and we are beginning to see a rise in debt investment platforms being established by key industry players to fill this need. Macquarie recently established Macquarie Infrastructure Debt Investment Solutions (MIDIS), a debt investment arm that will formulate bespoke debt investments for individual clients. Swiss RE recently awarded the firm a $500mn mandate to invest into bespoke infrastructure debt solutions. Other firms have followed suit, such as BlackRock, Natixis & Ageas all moving into the space.

The infrastructure debt space is likely to continue to grow, as more and more investors seek exposure to the sector and banks continue to pull back leaving a gap in the market for funds and bespoke debt platforms to fill. Preqin Infrastructure Online currently features over 1,700 active investors in the infrastructure asset class. Of these investors, 285 are currently actively considering debt investment opportunities. While it remains to be seen whether the fund model or bespoke managed accounts will become the most active route-to-market, infrastructure debt opportunities are likely to be sought after investments in the coming months and years.

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