PI Partnership


systems, transportation systems (including roads, bridges, air- ports and rail networks), as well as other fundamental facilities that provide essential services.


Large physical assets: The projects financed are not only large physical assets, but typically operate in markets with high barri- ers to entry. These features are beneficial to investors from risk and performance perspectives. As infrastructure debt invest- ments have significant underlying collateral in the form of the large physical asset, there is greater security and a higher recov- ery rate in the event of a material credit event. High barriers to entry reduce potential competition for the services that a project will provide, mitigating risk from a performance perspective. Stable revenues: Infrastructure debt typically involves regulat- ed and/or contracted revenues. An example is the financing of a photovoltaic (solar) power plant, where there will be priority of dispatch off the grid. That is, there is contractual uptake of the service provided, ensuring stable revenues. Furthermore,


Exhibit 1: Yield premiums for European infrastructure debt relative to equivalently rated corporate debt


Margin over Euribor in bp


100 200 300 400 500 600 700


0 A European infrastructure debt BBB BB Corporate bonds


Source: BNP Paribas Asset Management, May 2021, Bloomberg. Corporate bonds: Average option-adjusted spreads by credit rating for non-financial corpo- rate bonds (BAML, EN10/EN20/EN30/EN40/HE1C, 30 April 2021). European infrastructure debt: Estimated average based on a sample of market observations.


B 600 465 240 100 37 64 280 201


many services produced by the infrastructure will bear low technological risk and resilience to economic cycles. Cashflow-based lending: Investments in infrastructure debt relate to the operation and/or construction of a single asset or a portfolio of assets. From an investor (or lender) perspective, performance is cashflow-focused, with little to no emphasis on the price of the underlying asset. Portfolio diversifier: As an alternative asset class, the nature and characteristics of infrastructure debt mean there is a low correlation to financial markets, especially against the more traditional asset classes (i.e. equities and core fixed income).


European infrastructure debt: A resilient asset class supported by future trends


While 2020 was an immensely challenging year for financial markets, infrastructure debt proved to be relatively resilient: Many essential projects continued to operate throughout the height of the pandemic. This was not only testament to the quality of the asset class, but a timely reminder of its ability to generate stable income irrespective of market conditions.


Looking ahead, we believe European infrastructure debt is well positioned to perform in the coming years. The asset class is poised to benefit from the digitalisation and energy transition trends, which are a strong tailwind driving demand for telecommunications and renewable energy infrastructure. Moreover, the infrastructure market should continue to need more financing for projects that provide essential ser- vices. In considering this positive outlook together with the core fundamental strengths of the asset class, we believe European infrastructure debt is – and looks set to remain – an attractive investment opportunity.


1) Moody’s: Default and recovery rates for project finance bank loans, 1983-2019, Moody’s definition of default


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Dec-Jan 2022 portfolio institutional roundtable: Build Back Better 19


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