March 2017

The infrastructure sector is entering an exciting new era, with five clear trends emerging for investors and lenders.

The infrastructure sector is entering an exciting new era, with more opportunities to deploy creative capital, infrastructure debt gaining ground, a promising US market and offshore wind gaining momentum. Dean Kennedy, Product Management, Corporate Trust, EMEA and Bryan Gartenberg – Head of PF Sales Americas, Deutsche Bank recently spoke to leading industry magazine Infrastructure Investor about the full impact of these trends.

In their interview with the journal, five clear trends emerged for investors and lenders:

#1 The European Investment Bank has been instrumental in creating opportunities for institutional investors in infrastructure, but look out for other structures being used on Greenfield projects

The European Investment Bank’s Project Bond Credit Enhancement instrument effectively reopened the project bond market in Europe. It was deployed as an unfunded letter of credit for Greenfield projects, creating an opportunity for institutional investors to deploy their capital. This enhancement was replaced by the EIB’s Senior Credit Enhancement, which supports refinancings and acts as an unfunded solution to support both loans and bonds. Amidst these developments, it’s an interesting time to see whether other structures will be used for Greenfield projects.

#2 US infrastructure development looks set to be a big focus

US infrastructure development looks set to be a big focus both in terms of developing new infrastructure and rebuilding ageing assets, but also as a means of creating jobs. There will be some ramp-up period, but it’s a very active market and lenders and investors can expect to continue to see traditional forms of financing in terms of tax-exempt financing for roads and transportation hubs and similar public use infrastructure. New forms of financing will need to keep pace with growing demand for capital. Some of these projects will likely be large and will involve multi-tranche type of financings. And new players, in addition to the European and Asian developers, are also entering the frame.

#3 Debt funding will continue to dominate in Europe, benefitting from government support

The number of infrastructure funds on the debt side continues to increase, but there has also been a move to more true closed-ended debt funds. On the back of that, the UK and the German governments have been very clear of their intentions for increased infrastructure investment.

#4 The UK and Germany will continue to benefit from good infrastructure project pipelines

The next phase of road projects are being rolled out across the continent and moving to preferred bidder stage. Different types of financing solutions are also being sought for each project by consortia at the pre-bid stage. The German renewable sector is also moving to competitive auction process from feed-in tariffs from this year onwards. Offshore wind seems to be where there will be increased debt financing opportunity in multiple countries in Europe and in the UK going forward.

#5 Offshore wind will be an increasingly important sector but the risks need to be better understood

Despite question marks over its ability to compete with fossil fuels, offshore wind’s risks need to be better understood. Low bids for the Netherlands’ Borssele project (sites III & IV) highlights the competitiveness in the Dutch tender system which could lead to more bullish offers across Europe. There are engineering risks that are unique to building offshore that don’t exist in onshore. But that can be managed.

To read the full Q&A interview with Infrastructure Investor, please click here.

Dean Kennedy

Product Management, Corporate Trust, EMEA at Deutsche Bank

Kennedy

Bryan Gartenberg

Head of PF Sales Americas, Deutsche Bank

Bryan Gartenberg

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