Riskier Infrastructure-Like Transactions Likely to Increase

There will be an increased investment movement in riskier infrastructure-like transactions similar to 2007–08, said a new Fitch Ratings release. Credit professionals need to be on the lookout for such deals in nontraditional infrastructure investments. “Life insurers, fund managers and pension funds are increasing their allocations to infrastructure transactions as they seek out stable returns from real assets,” the report said.

“Non-core infrastructure” transactions are “likely to be fundamentally riskier than traditional infrastructure deals … because the underlying asset may be less essential to the public, may not have the same high barriers to entry and may experience more variable costs,” said Fitch.

Some of these “hybrid infrastructure” transactions include airport services and landing slots. “So far, investors have focused on buying and refinancing existing assets,” the ratings agency said, but “these investors are more aligned with debt investors in looking at the long-term stability of a business and thus keeping leverage within manageable levels.”

Private hospitals and care home businesses 10 years ago were structured in similar ways as the new infrastructure-like transactions. Other assets such as telecom towers were also once considered outsiders, but according to Fitch, some market participants now consider them as “core infrastructure” assets. This could change the current course of infrastructure hybrids and eventually land them in the same “core infrastructure” category.

– Michael Miller, editorial associate

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