Project Finance Market Design and Origination
The Project Finance/Infrastructure senior debt market is categorized as “private debt” however, the structure of the market in terms of loan origination, sector expertise and relationships is fundamentally different from the broader corporate direct lending market. In our view, the Infrastructure Debt market is different in two primary respects; (i) concentration of debt issuance in a core group of project owner/developers, and (ii) the coverage of the sector by commercial banks, not investment banks.
Project Owner/Developer Universe (US) Infrastructure Projects are generally owned and financed through ring-fenced/bankruptcy-remote Special-Purpose Vehicle (SPV) structures that are owned by development companies that have the specialization and the long lead-time development risk appetite. When these companies are seeking financing for their capital intensive projects, they tend to turn to relationship financial institutions that also have the same bespoke expertise in infrastructure project finance. The developers of projects can range from; (i) large public companies, (ii) privately held corporations, (iii) infrastructure funds that specialize in projects, and (iv) larger diversified private equity (PE) funds.
The list below (Chart 01) breaks out the top 50 infrastructure project owners/developers in the US market that are responsible for the majority of senior debt transactions.
post financial-crisis, asset managers like IFM Investors have developed a symbiotic relationship with these banks to provide the longer-term funded debt in consortiums with these specialty banks.
The large public investment grade companies generally have access to the public bond markets, however from time to time they have private debt transactions. At IFM Investors we have provided debt financings for projects owned by five of these seven companies.
Our largest source of deal flow tends to come from our relationships with the high yield (Sub-Investment Grade) corporate names, and most importantly the private companies and infrastructure funds. Our relationships at these firms are typically at the CEO and CFO levels, as well as with the treasury functions within the organizations. These relationships not only provide information on current investment opportunities, but also what is in their development pipelines. We have personal relationships with these firms that go back as far as 20 years.
*Source: IFM proprietary data as of June 30 2018
Meet the author
Rich Randall
Rich is responsible for the creation and management of IFM Investors’ debt investments strategies and portfolios, and for the debt investments team globally. He also heads IFM Investors’ North American debt investment business. Based in New York, Rich has more than 20 years of experience in originating, analysing, structuring and arranging debt facilities for large infrastructure projects.
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