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REPORT: $43b raised globally in infrastructure debt since 2013
Research - FEBRUARY 14, 2019

REPORT: $43b raised globally in infrastructure debt since 2013

by Jody Barhanovich

Infrastructure debt makes up a small but growing niche of the private debt market, with $43 billion having been raised globally since 2013, according to AMP Capital’s Infrastructure Debt: The Private Capital Advantage report.

AMP Capital’s infrastructure debt investor commitments make up $5.45 billion, or more than 10 percent of this total.

Institutional private capital is exceptionally well positioned to provide the advantages that capital market borrowing and banks cannot, according to AMP. Unconstrained by one-size-fits-all capital adequacy regulations or the need to satisfy ratings agency criteria, private lenders can analyze and price idiosyncratic risks associated with the required features and circumstances.

From the perspective of institutional investors, the draw of the private debt asset class in general is clear: it offers returns that exceed most defined benefit plan actuarial return assumptions, whilst providing better downside protection than other private market asset classes, both through capital structure seniority and faster distribution-to-paid-in (DPI) capital return. The median private debt fund reaches a 1.0x DPI in its sixth year, compared to the eighth year for private equity.
The stable business models and reliable cash yields of infrastructure providers make them a highly attractive proposition for liability-driven investors, so while playing an essential role in the funding landscape, managers — especially those in less competitive, higher-yielding niches such as mezzanine debt — can deliver attractive returns for their clients, according to AMP.

With its defensive infrastructure characteristics, the infrastructure debt sector brings less economic sensitivity than other parts of the private debt space, and with its fixed-income return profile, offers more predictable returns than other parts of the real assets space.

Specialized infrastructure debt investors harness structuring expertise and flexibility to fill the gap in the market, driving returns from unique structural features according to AMP.

AMP recently made one of our most complex loans to date, investing into a global portfolio of renewable assets with Neoen, France’s largest independent renewable energy provider. The €244 million ($276 million) equivalent green bond featured bespoke structuring for the portfolio of 51 solar and onshore wind assets. As well as being geographically diversified, the portfolio also included assets at different stages of development and construction as well as operating assets. The loan was made in three currency tranches (EUR, USD and AUD) and included features such as asset rotation rights and multi-currency cash pooling, according to AMP.

The deal is notable for its structural complexity, but also its attractiveness to both the investor — providing diversity of market, technology and currency, as well attractive risk-adjusted returns — and the sponsor, as it met all of their funding aims for the portfolio, including serving as an alternative to exit, with one tailored deal, according to AMP.

Infrastructure equity fundraising is at record levels, deal flow — creating demand for acquisition debt — is strong, and governments are looking to the private sector to resuscitate outdated infrastructure and meet future challenges in energy, transportation, utilities and telecommunications, according to AMP.

In the new lending landscape, opportunities abound for private capital to fill the vacancy left by banks in the growing demand for infrastructure funding. As infrastructure debt investors help infrastructure businesses with their financing solutions, the ability to create and underwrite customized solutions will be a key differentiator, according to AMP.

You can find the full report here.

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