Investment Actions

Deconstructing infrastructure debt

Nov 29, 2017

Risk attributes and current opportunities

For many investors, infrastructure allocations fall short of their targets. One way to broaden the opportunity set is by looking beyond equity to infrastructure debt, where a range of exposures offer the potential for attractive risk-adjusted returns.

Less bank lending, more bonds
Change in volume of global infra debt financing, bank loans vs. bonds (2007 - 100%)

Deconstructing infrastructure debt

Source: IJ Global, December 31, 2016. Note: The charted data represents the historical volume of bank lending compared to institutional bond issuance in the U.S., Canada & Europe. The bond market has grown significantly since the 2008-2009 GFC relative to the bank market. However, bank financing still accounts for the majority of debt financing activity.

Infrastructure debt takes many forms. Ratings range from sub-investment grade to investment grade, maturities from seven years or less to 30 years or more, and coupons from fixed to floating to inflation-linked. Historically, infra debt has exhibited lower default and loss rates than similarly rated corporate debt.

We review the short list of risk exposures that drive return profiles and debt ratings for nearly all infrastructure projects, regardless of sector. We then review current opportunities by sector, geography and type of debt.

Erik Savi
Erik V. Savi, Managing Director, is the Global Head of Infrastructure Debt and Head of the North American Infrastructure Debt business within BlackRock Infrastructure Investment Group (BIIG).
Tyler McConnell
Tyler McConnell, Vice President, is a member of the BlackRock Infrastructure Investment Group (BIIG) within BlackRock Alternative Investors (BAI).