Infrastructure ratings reflect cautious optimism

A new report indicates that infrastructure assets have remained fairly resilient through the crisis and there are few signs of credit deterioration. But the outlook is not yet 'definitively positive' and a number of risks remain.

Global infrastructure and project finance rating outlooks are “stabilising” and, in some cases, “moderately improving” according to a new report from Fitch Ratings.

Fitch: infra ratings are

The report, which assumes “gradual economic recovery throughout 2010 and onward”, suggests that the negative rating actions taken since the financial crisis to reflect higher levels of credit risk are not set to continue. However, it adds that no sector has a “definitively positive outlook” yet.

It notes that the performance of infrastructure assets has proved quite resilient and that few such assets have shown significant credit deterioration. The rating agency says it does not expect to “materially change” its rating approach to project finance as a result of observations made over the last couple of years.

According to the report, projects with low cash flow volatility such as those with availability payment structures for social infrastructure or transport, and contracted power and energy assets, have remained stable. The most negatively impacted projects have been those with market exposure, such as merchant power, and discretionary spending exposure, such as airports.

Looking ahead, the report notes that macro-economic risks remain important including the pace of recovery and the impact of high or low inflation. The volatility of commodity prices, it added, would affect energy and transport projects.

The report also says that counterparty risk remains a factor. However, it says that “while the credit quality of counterparties was affected during this crisis, it provided a greater measure of stability to projects than might have been expected”.

Fitch says climate change and related regulation is a “material credit factor” but is only affecting ratings in a limited way currently because of the lack of clarity on how credit quality will be affected.