Research - APRIL 21, 2014

Infrastructure project default rates increase

by Drew Campbell

Moody’s Investors Service reports default rates for infrastructure projects have risen but “remain better than average for project finance bank loans generally,” according to its annual study, Default and Recovery Rates for Project Finance Bank Loans, 1983–2012. The 10-year cumulative default rate for the infrastructure sector is 6.6 percent, compared with the 5.2 percent found in Moody’s previous study published in February 2013.

Andrew Davison, a Moody’s senior vice president and author of the report notes the increased default rate reflects the infrastructure projects exposed to demand risk during 2009–12, but “it remains better than the average of 8.1 percent for the study as a whole.” The study reviews data from 4,425 projects, which account for some 54.2 percent of all project finance transactions originated globally during the 30-year period.

“Our research shows that default risk for project finance bank loans is very different from that of general corporates,” Davison adds. “In particular, marginal default rates, which indicate the likelihood that a loan performing at the start of a specific year will default in that year, decline as loans mature. By year 10 from financial close, marginal default rates trend towards a level commensurate with a single A category rating.

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