Disciplined infrastructure lenders are focusing on risk allocation and preserving returns as spreads tighten, new research from Ocorian Nordic Trustee, the leading capital markets services provider, shows (please see the attached press release).
Its study found a third (33%) of senior market participants believe non-recourse project finance is the most effective lending structure in today’s market, narrowly ahead of 32% who favour mezzanine debt.
Around a quarter (24%) highlight the attractions of asset-backed lending with just 8% favouring hybrid structures and 5% senior debt, the research with infrastructure and private credit fund managers, investment bankers and infrastructure firms across Europe, found.
Senior debt with equity co-investment is by far the preferred approach to risk-sharing in infrastructure financing chosen by 62%, ahead of 18% saying risk-sharing should be structured as a syndicate and 12% favouring hybrid approaches.
Ocorian Nordic Trustee’s research across the UK, Germany, Switzerland, France, Italy and Sweden found 42% say large corporates such as utilities and energy companies are the most common type of borrower, while 37% pointed to private infrastructure funds.
The market is feeling the impact of geopolitical tensions and the rise of protectionism, which is driving a switch to investing in more local infrastructure projects – nearly a quarter (24%) strongly agree that is happening, while a further 75% slightly agree.
However, the market is continuing to evolve as infrastructure investing matures and attracts more capital – nearly three out of four (72%) expect an increase in more varied equity and debt solutions over the next two years.
Across the market, 76% say they are seeing increased use of hybrid debt and equity structures, while 72% are seeing increased use of preferred equity structures, the study found.
Cato Holmsen, Global Head of Capital Markets at Ocorian and CEO of Nordic Trustee, an Ocorian company, said: “”Our research suggest that financing remains conservative with lenders valuing structures that ring-fence asset cash flows, tightly allocate risk, and protect downside risks. Investors are active across the full risk spectrum from mezzanine and hybrid capital to preferred equity. This reflects a continuing sophistication by lenders and borrowers to optimize the capital structure and produce the best possible risk/returns.”
With more than 3,000 European trustee and loan agency mandates, Ocorian offers a wide range of capital markets services including standalone debt, securitisations, listings and loan administration across key global jurisdictions.
It works in partnership with a diverse range of clients providing SPV and corporate services as well as trustee and agency through Nordic Trustee, an Ocorian company and leading provider of loan agency and bond trustee services.
Its global capital markets teams have collectively more than 50 years’ experience navigating complex structures across a broad range of sectors and asset classes including private debt, project finance, aviation real estate and shipping
