‘Difficult to find a more compelling investment strategy than ours’, says EQT’s Blecher

Preparations for an economic downturn meant the vast majority of the firm's infrastructure portfolio had been refinanced prior to the crisis, its head of real assets tells us.

EQT’s infrastructure portfolio is displaying “little or no material” impact from the covid-19 crisis, the group’s deputy managing partner and head of real assets Lennart Blecher told Infrastructure Investor.

The limited impact, Blecher explained, is partly due to its heavy investment in digital infrastructure – three of the five assets in the €9 billion EQT Infrastructure IV portfolio are in this sub-sector – as well as preparations the unit made for an economic downturn in the last two years.

“The economy was going up and up, and we did not think this could continue,” he said. “So, in 2018 and 2019 we refinanced many of EQT’s portfolio companies, extended the financing for them and removed as many of the covenants as possible in order to futureproof the portfolio companies. That was concluded in May 2019, so now the financing structures are very solid, they are not breaching covenants, there is enough liquidity and there is nothing maturing soon.”

In addition to action on companies’ debt, Blecher says the division has increased its portfolio company reporting from a monthly summary to a weekly activity.

“I have weekly reporting of cashflows, liquidity adjustment, covenant headrooms and operating runways,” he said. “We have specific portfolio company reports, which are completed with actions to be taken in order to safeguard the results for 2020-21. We have defined more than 200 specific initiatives for the portfolio companies. The EBITDA impact is probably much less than any other business.”

As a result of these moves and its portfolio construction, Blecher said it was “difficult to find a more compelling investment strategy out there right now”. He added that out of EQT’s 16 infrastructure portfolio companies, four businesses were displaying a modest impact from the crisis, while one – theme park operator Parques Reunidos – was showing a more material impact.

“We will see about three to four quarters of substantial impact on Parques Reunidos’ revenues, but EQT has successfully refinanced the company and theme parks are now slowly opening up,” he said.

Blecher was nevertheless bullish on its merits as an infrastructure asset: “Parques Reunidos’ portfolio is all recreation parks in close proximity to bigger metropolitan areas. It is like a sporting facility. A modern city has to provide for its population in order to stay attractive – with amusement parks, sports facilities and recreation parks. Our definition of infrastructure includes recreational infrastructure.”

Post-covid infrastructure

EQT revealed in its Q1 report that it was considering launching a fifth infrastructure vehicle in the second half of the year – with sources indicating a summer launch – while not ruling out the use of a bridging fund, as outlined in its full-year 2019 results. With EQT Infrastructure IV between 70 percent and 75 percent invested, Blecher maintained that he had not thought about the size of a new fund, instead focusing on an investment strategy that has delivered a 16 percent IRR and a 2.6x money multiple since its inception.

In line with this, Blecher said EQT would continue to look at investments in sub-sectors such as digital infrastructure, energy efficiency and, potentially, healthcare.

“Coming out of this, I think we will also see the healthcare sector is a very interesting one,” he said. “Many affluent people will be able to pay insurance premiums in order to get better health services.”

Blecher also cautioned against any premature predictions about what covid-19 could mean for the exit environment: “I’m not concerned because, even in this environment, 60 percent of EQT Infrastructure’s portfolio companies continue to grow according to their plans. We are fully focused on developing the portfolio and taking advantage of the market opportunity,”