This paper examines the drivers and evolution of credit spreads in private infrastructure debt. We ask two main questions: Which factors explain private infrastructure credit spreads (and discount rates) and how do they evolve over time? Are infrastructure project finance spreads and infrastructure corporate spreads driven by common factors? We show that common risk factors partly explain both infrastructure and corporate debt spreads. However, the pricing of these factors differs, sometimes considerably, between the two types of private debt instruments. We also find that private infrastructure debt has been `fairly' priced even after the 2008 credit crisis. That is because spread levels are well-explained by the evolution of systematic risk factor premia and, taking these into account, current spreads are only about 29bps above their pre-2008 level. In other words, taking into account the level of risk (factor loadings) in the investible universe and the price of risk (risk factor premia) over the past 20 years, we only find a small increase in the average level of credit spreads, whereas absolute spread levels are twice as high today as they were before 2008.
EDHECinfra® is a venture of EDHEC Business School. We are an provider of indexes and analytics for the infrastructure investment universe. Because the majority of infrastructure assets are not publicly traded, there has traditionally been a vast knowledge gap when it comes to gauging the prices of these assets and their evolution. We are closing that gap with analytics and calculated indexes that already cover 25 countries representing an investable universe of 7,000 companies. We are based in Singapore and London.