Appetite for risk boosts pre-construction debt availability

US public agencies aiming to pass off price escalation risk during construction are increasingly looking towards P3s, according to S&P.

Growth in US public-private partnerships has helped spur robust project finance rating activity, a recent report from S&P Global Ratings concluded.

The industry report card, which reviewed 241 public project finance entities rated by the agency, points to new projects and a wave of refinancing of P3s originating around the time of the global financial crisis as being among the factors driving the increased activity. The way such projects are financed has also changed, according to S&P.

“While historically, PPP projects have often used bank loans to fund construction and then looked to the long-term debt market after substantial completion, we’ve seen an increase in the number of projects that issue long-term debt before construction begins,” the report stated. “This trend seems to indicate that investors have become more comfortable with construction risk.”

Tax-exempt debt and programmes such as TIFIA, through which the federal government helps finance infrastructure projects, have led investors to the infrastructure sector. Ben Macdonald, who authored the report, said governments aiming to pass off price escalation risk during construction have increasingly looked towards P3s and have found abundant capital available.

“When some of these deals have been refinanced, we see that they are oversubscribed multiple times,” Macdonald told Infrastructure Investor. “So there is certainly demand there for this type of asset.”

The US and Canada comprise about half the projects reviewed in the report. Europe, the study noted, has seen significant activity in the renewable sector while in the Middle East, activity has primarily been in the solar, desalination, power generation and gas liquefaction sectors.