Infrastructure debt is increasingly becoming an important part of institutional investors’ allocations, according to UBS’ new report, Top trends in 2019: Infrastructure Outlook.
Globally, nine senior infrastructure debt funds have launched over the past two years, raising a cumulative $3.35 billion, which is small relative to the overall size of the global financing market of approximately $300 billion (European market: $117 billion). However, it is worth noting that bank financing still makes up between 80 percent to 90 percent of total financing in the infrastructure market.
Coinciding with the correction in equity markets, there was also a repricing in public debt markets. This was more pronounced in the high-yield market, reflecting caution over economic growth, the tapering of government bond-buying programs and worries around the ability of companies to withstand rising rates, according to UBS.
In the private market, UBS has not seen a noticeable repricing on European senior infrastructure debt or in the Term Loan B market in the United States. However, if public market spreads continue to widen, UBS expects this to translate to higher spreads in the private markets. Most infrastructure investors target an illiquidity premium over equivalent corporate bonds; therefore, the private market will need to adjust. The structure of the private market means that any repricing in the private market will typically lag any public market correction.
