Fitch: US investors interested in EU infra

The ratings agency argues that the US private placement market is well positioned to help fund EU infrastructure as Basel III and Solvency II cause European funders to retrench. However, Fitch warns that US investor ‘participation is unlikely to fill the gap significantly’.

Fitch Ratings, a ratings agency, said in a recent note that US investor interest in European Union (EU) infrastructure funding is on the rise, but warns that it will not be easy for these investors to take advantage of the opportunities cropping up across the continent.

Fitch argues that regulations like Basel III and Solvency II are limiting European sources of project finance and, consequently, “making funding from US sources more attractive”. The ratings agency highlighted the US private placement market as a good source of debt for European infrastructure assets, noting that the “recent reduction in US interest rates have also made higher yielding, less liquid EU infrastructure assets more attractive”.

However, Fitch pours cold water on the prospect of US investors stepping in to pick up the slack left by retrenching European investors. The main problem, Fitch argues, is currency volatility: “US investors currently have little appetite for Sterling or Euro investments due to the challenges these economies are facing.”

The ratings agency points out that currency swaps are a possibility for these types of deals, but warns that “these swaps are available only from a shrinking number of highly rated institutions and only offered to the strongest infrastructure enterprises”. Fitch also stresses that “US investors may be wary of the lesser degree of reporting and transparency that exists in the EU bond markets”.

The bottom line: even though US investor interest in EU infrastructure is on the rise, “only the larger and higher rated European issuers are in a position to manage these issues and take advantage of the market access provided by the US private placement market”.