Infra Debt Discussion
I'm a fundraiser trying to get a better grip on the infra credit space. I think I have a decent understanding of where these products fit in LPs portfolios, but am looking around the edges at the nuances where the line might be blurry between infra credit and corporate credit, specifically on more modern "high octane" infrastructure like in energy transition, digital, and transport.
Few Q's:
-Very general: How is lending to "new economy" infrastructure typically evaluated? Things like lending to digital co's to help them buy more compute for AI, fiber buildouts, electric car charging, solar buildouts? Do LP's still see this as infra debt or some other way? For it to be considered infra debt, does it specifically need to point to project finance w/ senior secured loans?
-Building on previous Q: How is the exposure framed for lending to value-add infra companies? For example, are there instances where infra managers are raising debt for their value-add portco's but not marketing the debt as "infra debt"? I think one could assume this raises discrepancies on if their equity investments are actually infrastructure or not. In this case, what core metrics/ratio's/etc. could you point to to show that the exposure is uniquely infra or provides infra credit-like downside exposure?
Many thanks in advance
Based on the most helpful WSO content, here's a breakdown of how lending to "new economy" infrastructure is typically evaluated and how it might be framed in terms of infra credit versus corporate credit:
Evaluation of "New Economy" Infrastructure Lending:
Infrastructure Debt vs. Corporate Debt:
Exposure Framing for Value-Add Infra Companies:
It's important to note that the distinction between infra and corporate credit can be nuanced, and the perception of LPs may vary based on their investment mandate and risk appetite. The key is often in the structuring of the debt and the underlying characteristics of the assets being financed.
Sources: Interviewing For Infrastructure Investment Roles, LevFin to Infrastructure: The Need to Build, Debt for LBO?, Interviewing For Infrastructure Investment Roles, https://www.wallstreetoasis.com/forum/real-estate/state-of-the-cre-debt-markets?customgpt=1
Interesting question curious as well.
Fwiw I feel like I’ve seen a recent bifurcation of infra assets into ones that can be securitized and ones that can’t. Have been a lot of cool abs deals in the data center / contracted fiber space where you move stabilized stuff into an asset backed collateral pool as you develop. Brings cost of debt down a lot. Companies that can pull that off vs. places that can’t?
Don't really know so commenting for visibility
+1, this is helpful as a starting point for some googles. Any specific deals you're thinking of / managers active in the space to narrow the search? Also would be curious if you could give an example on the assets that can and can't be securitized.
Anything with long enough contracts that has counter parties with high / investment grade credit ratings. All the Vantage platforms digitalbridge owns are a good example. Split into a devco and a stableco and as you build and contract, move things into the stableco and upsize your abs facility.
pretty cool stuff thanks
good questions.
outside of core infrastructure - the core+, core++, core+++ stuff is marketing bull shit and is no different to asset backed generalist credit
so what differentiates infra credit from generalist credit? (i) core instructure benefits from unique credit rating methodology which is basically more favourable and allows for more leverage at a lower debt cost, (ii) insursance funds which invest in core infrastructure debt benefit from solvency regs guided capital reserving relief which lets them price lower cost debt and (iii) banks which lend to core infrastructure benefit from favourable capital reserving releif under basel regs guided bank credit risk methodology which lets them price lower cost debt
as you can see the infra definition benefits the borrower as it reduces the cost of debt. now the exetiential question is whether this lower cost of debt is actually now worth it for lenders in a higher rate enviroment, implied illiquidity premium and widening definition of infra
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