Recent changes to the infrastructure debt markets have been dramatically sudden by the standards of project finance. In the aftermath of the credit crisis until 2013, the market for project bonds in the UK and in Europe was non-existent. At the same time, many of the traditional project finance lending banks were no longer active. That meant project finance debt was difficult to source from all but a few specialist lenders or from multilaterals and the public sector.
So what has changed? Partly, this is a lesson in history: when one or two products have such a dominant position, they are vulnerable to systemic risks that undermine those delivery models. In this case, the UK and much of the European project finance market was dominated by monoline project bonds and bank funding.
“The dominance of the wrapped bond execution in the UK is illustrated by the fact that from 1997, when the first PPP project financed through the capital markets was closed, through today, only two early projects were funded with bonds that did not bear a monoline guarantee.”
– Capital markets in PPP financing: Where we were and where are we going? European PPP Expertise Centre, March 2010.
In the absence of a tried and tested alternative, the project bond market came to a juddering halt as the ratings of the monolines declined. At the same time, many of the European project finance banks could no longer lend at the same pricing levels or for the same long-dated maturities, largely as a result of changes in capital adequacy rules, but also due to repairs being made to bank balance sheets, and in some cases refocusing on “core banking” (of which project finance was not seen as a part).
Keep up to date
Sign up to receive the latest legal developments, insights and news from Ashurst. By signing up, you agree to receive commercial messages from us. You may unsubscribe at any time.
Sign upThe information provided is not intended to be a comprehensive review of all developments in the law and practice, or to cover all aspects of those referred to.
Readers should take legal advice before applying it to specific issues or transactions.