Liquidity crisis no more

The options are increasing for infrastructure assets needing long-term debt finance, making non-market solutions appear redundant.

We don’t know exactly who they are, but we know they represent a trend. When UK airport operator Heathrow announced that a single investor had agreed to hand it £200 million (€243 million; $330 million) in long-term funding, we went to work to identify who had the deep pockets. Tackling the PR obstacle course we got as far as discovering that it was a European insurance company – but no further.

This fact alone was interesting though. We have been told that institutions are interested in financing long-term infrastructure. This deal ticked that box: one tranche of the triple-tranche sterling-denominated private placement stretched out to 2049.

We have also been told that – as the banks have pulled away from that long-term financing role – new relationships would have to be nurtured between institutions and borrowers. Tick that box, too. StormHarbour, which arranged the deal, was all too keen to stress the relationship aspect in a statement:

“We were able to introduce…a new real money investor interested in building a long-term relationship with Heathrow,” said StormHarbour managing director Patrick Swiderski.

The deal has certainly captured the imagination of the market. When Infrastructure Investor spoke about it with infrastructure debt professionals, they noted with interest both the size of the cheque and the “one-to-one” nature of the deal. A number of these “one-to-ones” have already been seen and plenty more are expected in future as institutions find a lack of supply from their traditional inflation-linked long-term options such as government bonds and utilities and look elsewhere.

An obvious question perhaps is whether the infrastructure debt professionals see this kind of thing as a competitive threat. The answer is: not really. For those offering funds, they are typically targeting investors with shallower pockets for whom a pooled vehicle can offer expertise they may not have internally and a means of achieving diversification.

On the whole, transactions like Heathrow are viewed as a healthy development because they demonstrate growing options in the private debt space. Whether it’s through funds, managed accounts, private placements or bank financing (which does still exist), no one believes they are looking at a liquidity crisis when it comes to the debt financing of infrastructure.

In turn, this raises questions about market support mechanisms – such as government guarantee schemes and the European Investment Bank’s project bond initiative – that were introduced in the aftermath of the financial crisis to plug the gap left by the retreating banks.

Many would say that private sector solutions could now fill that gap all by themselves – were it not for the fact that, in some cases, non-market solutions are crowding them out. Perhaps this is to over-generalise: there are, after all, still some troubled sectors and markets where the private sector fears to tread. But in some cases, it does appear that what was intended to be a stimulant is fast becoming an irritant.

P.S. Please remember to make your submissions by the end of tomorrow for our Banking Awards for Excellence 2013, recognising the best examples of infrastructure banking innovation during the year. Please click HERE