Most-read news stories from over the past month:

1. KKR, South Korean pension team up in US pipeline deal
The private equity firm and South Korea's $270bn National Pension Service have acquired the 23.44% stake in Colonial Pipeline being sold by energy giant Chevron. KKR indicated Colonial might be a good fit for its infrastructure portfolio.

2. Infrastructure fundraising recovers
A total of $5.9bn was raised during July, August and September, bringing the total raised through the first nine months of 2010 to $15.8bn. That figure easily eclipses the $10.7bn raised last year, making 2010 the first year since 2007 that infrastructure fundraising will show an up-tick.

3. Clunie to launch new fund targeting ‘refinancing wall’
Spence Clunie, former head of Macquarie Capital’s UK and European debt advisory business, is in the process of launching a new business, Ancala Partners, and is understood to be seeking to raise a fund of €750m to €1bn.

4. Pension discloses GIP, Macquarie performance figures
In a recent meeting, a San Diego pension offered a rare glimpse at internal rates of return and performances of two heavy-hitting infrastructure investors – Global Infrastructure Partners and Macquarie Infrastructure Partners.

5. DIF appoints new PPP head
The Dutch fund has appointed Paul Nash, who previously headed the UK office, as the head of the fund’s PPP/PFI team. In addition, the company has added two new members to its London and Paris teams.

6. Macquarie Infrastructure Partners expands portfolio
Macquarie’s North America-focused unlisted infrastructure business has agreed to buy two renewable power plants for $25m and has added several businesses to its wireless communication tower operator, Global Tower Partners. The tower business has grown from approximately 8,000 towers to more than 13,000 under Macquarie’s ownership.
7. GMR Infrastructure to develop solar project in Gujarat
The Gujarat government has given the green light for GMR to set up a 25-megawatt solar power plant in the state. The deal is GMR’s first ever photovoltaic project.

8. Pittsburgh rejects parking deal, state rejects Pittsburgh budget
The nine-member Pittsburgh city council turned down a $452m offer from a JPMorgan group, putting a final end to nearly two years of deliberations over whether to lease its parking assets. In related news, a state oversight body rejected Pittsburgh’s 2011 budget, which had assumed council would approve the deal.

9. Volatility makes Asia 'opportunistic' rather than 'core'
The high risk profile of Asian infrastructure makes it more of an opportunistic play for pensions rather than core, according to a speaker at the Infrastructure Investor: Asia forum in Singapore. There is also confusion about some funds' investment mandates.

10. HSBC Infrastructure raises stakes in UK hospital projects
The UK-listed infrastructure investor has acquired additional stakes in the Oxford John Radcliffe Hospital project and has also completed an incremental acquisition in the Queen Alexandra Hospital for a total of £27.3m. HCIL also plans to issue C shares, which should begin trading in mid-December.

Standing tall

A comprehensive study by Moody’s surveying the performance of project finance loans over a 25-year period shows ultimate recovery rates on par with corporate bank loans

Project finance lenders – providers of the non-recourse debt that’s been the main source of financing for infrastructure and energy projects over the last two decades – have reason to feel proud following a study published this week by ratings agency Moody’s.

The good news, abundantly highlighted in the study, is that the fundamentals of project finance loans are strong and the risk mitigating mechanisms put in place to support them stand the test of time.

Moody’s analysed the performance of more than 2,500 project finance loans underpinning projects across the globe from 1983 to 2008. The sample came from what the agency described as a “consortium of leading sector lenders” and accounted for almost 45 percent of all projects financed since 1983.

The ratings agency found that this sub-set of corporate loans is remarkably resilient, with consistently high recovery rates averaging 76.4 percent. A recovery rate measures how much of its investment a lender is able to salvage in the event of a default situation.

Moody’s also concluded that recovery rates on project finance loans are “broadly similar to ultimate recovery rates for corporate bank loans, despite features such as high gearing and long tenor that are typical for project finance loans”.

In fact, ultimate recovery rates are “broadly consistent” for projects located in highly developed economies as well as developing economies, according to Moody’s. Even places traditionally perceived as risky, such as Africa, emerge well, with only one project out of 92 on the continent having defaulted.

Power projects are by far the most prone to defaulting, accounting for almost half of total defaults. But their recovery rate still stands at 88 percent.

The ratings agency also found that lenders who chose to cut their losses by selling defaulted loans posted a substantially lower recovery rate (47.8 percent) on their investment than those who decided to stick through the work-out process (76.4 percent).

The problem is that project finance loans’ strong performance still has to contend with two formidable challenges. First, there’s the ongoing liquidity crisis which is constraining long-term bank lending. And secondly, there’s a regulatory climate (read: Basel III) that is threatening to make the long-term, illiquid loans that are the staple of project finance even more expensive than they currently are.

Challenges notwithstanding, project lenders have reason to stand tall.