Report: Debt capital markets - Project bonds - The long road to project bonds

As traditional bank lenders cut back on providing long-term project debt - or exit the business line altogether - greenfield project developers know that they are going to need new sources of long-term capital from institutional investors such as pension funds and insurance companies. But these inst...

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Bibliographic Details
Published in:The Banker 2013-03
Main Author: Marray, Michael
Format: Article
Language:English
Subjects:
Banks
Bond markets
Bond ratings
Capital
Capital markets
Construction
Infrastructure
Institutional investments
Insurance companies
Interest rates
International
Investment banking
Lenders
Pension funds
Private placement
Ratings & rankings
Refinancing
Renewable resources
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Summary:As traditional bank lenders cut back on providing long-term project debt - or exit the business line altogether - greenfield project developers know that they are going to need new sources of long-term capital from institutional investors such as pension funds and insurance companies. But these institutional investors remain wary of the risks of construction delays, cost overruns and long-term project underperformance, and are going to need credit enhancement features in order to bring them in on bond deals. Structures currently being worked on include the Project Bond Initiative from the European Investment Bank (EIB), a subordinated bond fund from Hadrian's Wall Capital, and the Pebble structure being promoted by ING. These all typically aim to boost bond ratings up to the 'A' level, which gives insurers and pension funds some reassurance with regard to cliff risk - the danger of seeing their investment-grade bond holdings drop down into junk bond territory. It has proven to be difficult to get the first deal closed, but bankers express confidence that the first couple of project bond transactions will finally be placed in 2013.
ISSN:0005-5395