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Global infrastructure debt "more stable" on average than other corporate debt, says ratings agency

The credit ratings of global infrastructure projects have been consistently more stable than the ratings of non-financial corporate debt over the past 20 years, according to international ratings agency Moody's.

Publishing the results of its "expanded and updated" research, the agency found that infrastructure debt was on average two-thirds less volatile than other types of non-financial corporate debt. The performance of US municipal infrastructure debt was even stronger, according to the report.

"Ratings in the US municipal infrastructure sector have shown about a fifth of the volatility of ratings in non-financial corporates, while ratings in corporate infrastructure have had about two thirds of the volatility," said Merxe Tudela, lead author of the report and a Moody's vice president and senior analyst.

Moody's currently rates infrastructure securities worth $3.5 trillion worldwide. This is made up of debt and preferred stock issued by corporate infrastructure and project finance entities worth $2.7 trillion, plus an additional $0.8 trillion of infrastructure debt issued by US municipal entities.

The report examined the rating transition rates, cumulative default rates, recovery rates and rating accuracy measures of these securities between 1983 and 2013. It found that as well as turning out to be more stable than other corporate debt more generally, corporate infrastructure debt securities tended to share the same credit risk profiles.

In addition, the likelihood of infrastructure debt defaults tended to be easier to predict than the likelihood of default of other non-financial corporate debt. Infrastructure defaulters tended to carry a lower rating than 94% of other infrastructure debt one year ahead of default, while non-financial corporate defaulters were ranked below 86% of other non-financial corporate issuers one year ahead of default, according to the report. Default events captured by Moody's included bankruptcies, payment defaults and distressed exchanges.

The vast majority of ratings given to infrastructure projects over the study period were investment grade, and most of those were concentrated in the single-A range, according to the report. Only half of the non-financial corporate ratings were investment grade, it found.

Moody's working definition of infrastructure securities covers public and private debt issued by providers of "large, capital-intensive, critical assets that underpin economic activity". Projects classed as 'infrastructure' by the agency include utilities and energy infrastructure, transport systems and 'fundamental' facilities including stadiums, military installations and hospitals.

Research by investment bank Goldman Sachs earlier this month found that insurers were increasingly investing in infrastructure debt, private equity and commercial mortgage loans instead of government and agency debt and cash. According to the report, firms' investment and financial officers were becoming more open to investments they perceived as more "risky" if they offered better investment returns.

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