May 18, 2024

Private Credit - Infra Debt

Hi all, keen to zero in on infrastructure debt and understand the field better. In particular, hoping to understand the following:

  1. Backgrounds of those who work in infra debt: where they worked before (project finance?), how many YOE, etc.

  2. Nature of the work: is it identical to project finance but with higher hurdle rates? What are the hours like?

  3. Types of facilities: Do infra debt funds try to lend to projects as senior lenders, or are they willing to be subordinated to banks?

  4. Types of projects: Do infra debt funds look for projects with minimal merchant risk (realise that the level of risk would also influence the seniority of debt facility provided) 

  5. Key players: who are the key players performing well in this space right now?

Appreciate any insights provided, and thanks in advance for your help.

 

Commenting my POV - I work in infrastructure debt. Curious to know your background. Not many people are interested in infradebt

1. Backgrounds of those who work in infra debt: where they worked before (project finance?), how many YOE, etc.

Yes, generally most if not everyone will be from project finance teams, because its a niche area and not many people have interest/knowledge about infradebt. YOE varies - theres no set pipeline like PE (ie. 2-3 years out of IBD), given infradebt is a niche sector. People can join as analysts in grad programs, to Directors coming from PF teams. 

2. Nature of the work: is it identical to project finance but with higher hurdle rates? What are the hours like?

Yes, the analysis will be similar but with higher rigour because project finance teams tend to lend based on relationships, while infradebt funds lend strictly based on risk return. Hurdle rates can vary based on funds - most funds do both investment grade and high yield investments. Hours are usually quite good, probably since most PF teams are more relaxed than general IBD teams and the role is on the buyside.

3. Types of facilities: Do infra debt funds try to lend to projects as senior lenders, or are they willing to be subordinated to banks?

Both, again depending on fund. Investment grade funds will typically invest in senior tranches, while sub-IG funds tend to invest in holdco/mezz to achieve required returns

4. Types of projects: Do infra debt funds look for projects with minimal merchant risk (realise that the level of risk would also influence the seniority of debt facility provided) 

Again, this depends on fund risk return requirements. Sub-IG funds will have to take some, if not significnat amounts of merchant risk in order to achieve returns. However, given the 'infrastructure' element of infradebt, most investors (LPs) will want contracted, foreseeable cashflows, so ideally this is minimised. That said, with the amount of liquidity from banks/other players going into the transition/renewables space, levels of merchant exposure in deals has been increasing.

5. Key players: who are the key players performing well in this space right now?

The space is still very niche and developing. The top players (by fund AUM) include Brookfield, AMP/Ares, Blackstone, Blackrock (IG space), but these top funds have max 5+bn of AUM, which is tiny compared to infrastructure equity, and private equity funds

 

Personally dont see many such profiles. But I think it should be possible to get in, given the underlying credit analysis is fundamentally the same. Being able to demonstrate understanding of the nuance of infrastructure (the contracts and modelling) should put you in a good position

 

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