Raj Rao

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\\nlon14p20507a\AIGIP$\5 - Presentations\2007-02-05 - Mumbay Conference\Infrastructure Financing Presentation - Mumbai Conference.ppt - Jan 31 2007 - 20:33 /1
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Infrastructure Financing : Recent Trends
6 February 2007
THESE MATERIALS MAY NOT BE USED OR RELIED UPON FOR ANY PURPOSE OTHER THAN AS SPECIFICALLY CONTEMPLATED
BY A WRITTEN AGREEMENT WITH GLOBAL INFRASTRUCTURE PARTNERS.
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Table of Contents
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1.
Executive Summary
2.
Debt Financing Market
3.
Innovative Financing Tools
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1.
Executive Summary
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Executive Summary
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A5
F6
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Private investment in infrastructure assets is booming

Volume in the first nine months of 2006 totalled $149.4bn from 348 projects closed(1)
Significant new money being raised for infrastructure investments

Infrastructure funds, pension funds, corporates ($324bn raised in total for infrastructure investment(2))
Increased competition for assets leading to higher valuations
Debt markets resilient and providing more flexible debt packages

Increasing debt quantum, and innovative debt structures available
Elaborate financing structures, longer maturities, non-amortising debt, accreting Swaps
Corporate restructurings in vogue: spin off/split off of infrastructure assets

Some funds / corporates looking towards emerging markets
More opportunities, higher expected returns
Definition of infrastructure being expanded

Diversification towards assets providing infrastructure-like cash flows
(1) Project Finance magazine, Issue 275, November 2006

(2) The Financial Times, 27 October 2006
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Huge Demand For Infrastructure Assets
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Global Infrastructure M&A Deal Flow is over $300bn since 2003
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by Region ($327bn)
Asia 6%
Australia 7%
CEE/FS
U 3%
by Sector ($327bn)
Financial +
Strategic 3%
OECD
North
America
41%
Middle East /
Africa 1%
OECD
Europe
38%
by Type of Acquirer ($327bn)
Transport
20%
Financial
29%
Strategic
68%
Latin
America
3%
Energy
80%
Source: SDC
Assets
have
pricing
power
Provide
basic,
everyday
services
Consistent,
inelastic
demand
Long-life,
high-value
physical
assets
Significant
barriers to
entry
Low risk of
technological
obsolescence
Strategic
competitive
advantage
Fixed-cost
base, low
variable
cost
Active management of infrastructure assets
Strong cash
generation
Revenues
correlated to
inflation
Generally low
Low
ongoing
correlation to
capex
other asset
requirements
classes
Capital
growth
Explosion in number and value of deals announced in last two years

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Recent Infrastructure Acquisitions
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Da te
Ta rge t
Acquire r
Airports
Dec-06
London City
GIP / AIG
Jun-06
Dec-05
BAA
Budapest
Ferrovial
BAA
Oct-05
Copenhagen
Macquarie Airports
Nov-04
Brussels
Macquarie Airports
Jul-02
Jun-02
Bristol
Sydney
Apr-01
Jul-00
Ente rprise Va lue (!bn)
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LTM EV / EBITDA
Ne t De bt / EBITDA
1.1
27.6x
14.9x
23.6
2.0
16.3x
30.0x
12.1x
15.6x
2.3
10.2x
8.0x
1.6
12.3x
8.5x
Ferrovial / MAp
Ferrovial / MAp
0.4
3.0
18.3x
17.7x
13.0x
11.6x
Newcastle
Copenhagen Airports
0.6
16.4x
8.3x
Rome
Leonardo Consortium
2.7
17.2x
9.0x
18.4x
11.2x
Ave ra ge
Ca r Pa rks
Dec-06
Dec-06
Chicago Parking
Charterhouse
Morgan Stanley
Epolia
0.4
0.4
NA
14.6x
NA
NA
Jul-06
Jul-05
Q-Park
3i
Car Park
NCP
0.3
0.8
17.7x
13.1x
NA
NA
15.1x
NA
Ave ra ge
Ports
Nov-06
Dec-06
OOCL
P&O Ports North America
Ontario Teachers' Pension Plan

AIG Global Investment Group
1.9
0.5
24.0x
N/A
NA
NA
Jun-06
Dec-05
AB Ports
PD Ports
Goldman Sachs
Babcock & Brown
5.0
0.4
16.7x
13.2x
11.5x
NA
Nov-05
Feb-05
P&O
Mersey Docks
Dubai World Ports

Peel Ports
5.8
1.4
13.4x
11.4x
NA
NA
15.7x
NA
Ave ra ge
Toll Roa ds
Aug-06
Jan-06
Europistas
Indiana Toll Road
Dec-05
Dec-05
APRR
ASF
Dec-05
Oct-04
SANEF
Chicago Skyway
Ave ra ge
(1)
(1)
Sacyr Vallehermoso
Cintra / MIG
1.5
3.2
25.5x
44.7x
NA
52.9x
Eiffage / MIG
Vinci
12.0
19.2
12.3x
12.3x
10.7x
9.1x
Abertis
Cintra / MIG
8.9
1.5
12.0x
45.8x
9.5x
38.8x
25.4x
24.2x
(1) For Skyway and ITR 2006 EV/EBITDA and Net Debt/EBITDA have been used, in all other cases the LTM multiple has been adopted
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An Increasingly Competitive Sector
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Increasing Investor Appetite
Fund raising by
investment banks and
PE accelerating
Existing infra funds

pushing to get
invested
More direct investment

from European and
Middle Eastern investors
Additional Capital to the Sector Further Compounding Asset Demand
Decreasing IRRs
Equity IRR (%)
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30
25
20
15
Interest Driven Towards New Areas
More interest in emerging markets

Growing demand for private capital
Less mature markets mean higher IRRs
Demand growing for peripheral infrastructure

assets providing infrastructure-like cash flows,
e.g.
ferry service
car parks
motorway service
energy metering
Embryonic
Market
Maturing
Market
10
5
Time
Efficient
Market
The infrastructure sector is moving towards a fully efficient market

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Infrastructure Funds/ Investors
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Australian
Investment Bank
North American
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European
Middle East
Last 18 months has seen an explosion of Infrastructure Funds

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Out - performance of Infrastructure Stocks
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Over 1,2,3,5 & 10 years the infrastructure sector has outperformed equities and government
bonds by a material margin
This fundamental re-rating has occurred across all regions and sub-sectors, based on the slow
but steady realisation by the market of the attractive fundamentals of the sector
Global Infrastructure & Utilities Performance
Global Infrastructure (ex Utilities) Performance
Key risk statistics to 30 September 2006
Key risk statistics to 30 September 2006

80%
30%
70%
25%
60%
50%
20%
40%
30%
15%
20%
10%
10%
0%
5%
-10%
1 Yr
2 Yrs
3 Yrs
5 Yrs
-20%
0%
1 Yr
2 Yrs*
3 Yrs*
5 Yrs*
10 Yrs*
UBS Global Infrastructure & Utilities Index

Global Equities (S&P/Citigroup BMI Index)
Global Government Bond Index (Citigroup)
Source: UBS Investment Research, Q-Series: Infrastructure & Utilities, 10 November 2006
* Compound annual returns
-30%
Toll Roads
Communications Infrastructure
Diversified Infrastructure
Airports
Ports
Source: UBS Investment Research, Q-Series: Infrastructure & Utilities, 10 November 2006
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Corporate Restructuring: Ferrovial Case Study
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Trend among listed infrastructure players to

deconsolidate their concessions division (Ferrovial
Cintra, ACS Abertis, Hochtief HTAC, FCC
Global Via (considered), Sacyr Vallehermoso
Itinere (considered))
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Ferrovial Re-rating Timeline

Ferrovial re-rated from c. 6-7x EBITDA preCintra to c. 12x within 6 months
Crystallising higher value has led to a re-rating of

the corporate parent and full ratings separation of
the concession (non-recourse leverage)
Phase II:
Post Cintra IPO,
Pre BAA Acquisition
Phase I:
Pre Cintra IPO
Phase III:
Post BAA
Acquisition
300
Cintra 38% Minority Listing
25.0x
250
20.0x
200
62%
150
15.0x
100
10.0x
50
100%
Toll Roads
Car Parks
18 Toll Roads
1,689 Km
238,200 Lots
Airports
4 Airports
36m Passengers
0
Jan-04
5.0x
Jul-04
Jan-05
Jul-05
Ferrovial Indexed Price
IBEX Index
25
October
2004:
Cintra
sets final
IPO price
of 8.24 /
share
14 March
2005:
Signature
of the
TransTexas
Corridor
Contract
Jan-06
EV / EBITDA
08 February
2006:
Ferrovial
announces it
is planning a
possible
takeover of
BAA
Jul-06
Jan-07
06 June
2006:
Unanimous
agreement
between
Ferrovial and
BAA on new
takeover offer
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2.
Debt Financing Market
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Investment Grade Characteristics of

Infrastructure Assets
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Stable & Predictable

Cash Flows
Perpetual / Long
Concession Assets
Regulated Asset Base
No/Limited Commodity
Price Risk
Investment Grade
Characteristics
Conservative
Management
Controllable Operating
Expenditure
Visible & Predictable

Capital Expenditure
Simple Assets
Infrastructure Assets Generally Have Low Business Risks
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Infrastructure Financing Key Characteristics
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Structure to Allow
Dividends from Start
Security Imperfect
Due to Regulation
High Overall
Leverage
No Cash Sweep or
Amortisation
Pricing Lower than

LBOs
Dividends from investment grade structure
Avoids de-leveraging unless its off plan
Sponsors are long-term holders & need yield
Security only allows control over the business
A consequential but normal cost of regulation
Business is valuable as going concerns only
Assets essential to infrastructure
Validity of leverage employed is via rating
Debt may be refinanced / repaid over 20-30 years
Concept is to keep assets leveraged
Senior facilities are investment grade
Aimed at corporate lenders / project finance
Priced at premium to investment grade loans
Underlying businesses have minimal volatility
Expect same / similar fee skim
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Financing Options
Significant portion of infrastructure deals being done in the structured banking market
Decreasing Financial Flexibility
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Traditional
Project
Financing
Securitisation
Corporate
Bond Market
Traditional
Bank
Financing
Structured
Banking
Product
Increasing Leverage
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Infrastructure vs. LBO Financing
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Infrastructure
LBO Market
Debt sized from financial ratios
Debt sized according to repayment ability
Dividends allowed subject to lockup
No dividends
Senior position ring-fenced
Junior is subordinated to Senior
Do not disrupt cash flows avoid defaults
Not all deals are stable infrastructure assets
Maturities may be 5-8 years
Maturities will be 7-9 years
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Infrastructure vs. Project Financing
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Project Financing
Infrastructure
Debt sized according to repayment ability (DSCRs / LLCRs)
No construction / development risk
Significant construction / completion risk
Stable cashflows
Higher degree of variability of revenues
Maturities will be 12-20+ years
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Standard Infrastructure Deal Structure
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OpCo
Senior Debt
Assets & Businesses
HoldCo
Junior Debt
Equity Investors
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Does not disrupt cash flows avoid defaults
Default / acceleration causes loss of licence / concession to monopoly or

essential service
Debt sized from financial ratios for initial / constant implied ratio or BBB min
Profiled to have exit ratios consistent with A- / BBB+ takeout
Senior position then ring-fenced to assist with formal rating process
Forward and backward covenants
Cash sweep if deviations from plan (lock up at 10-20%)
Secured (subject to regulatory / legal constraints)
Debt fully subordinated unrated (c. BB implied risk) (15-20% of senior)
Leveraging a regulated / monopoly investment dividend 3-5 times
Additional financial covenants & Secured on BidCo shares
Non-amortising 5-8 year facility
Credit improves with senior; investment refinancing possible at maturity
Upon default at OpCo, junior voting rights are subrogated to the senior lenders,
according to an Intercreditor Agreement
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Case Study (1): BAA

Transaction Summary
Enterprise Value
BAA is the largest airport operator in the world

144.6m passengers in the UK, 15,000 employees worldwide
Owner of Heathrow, the worlds busiest international airport
Privatised in July 1987
Serves over 700 destinations via its UK airports
International managed and retail contracts (118m passengers)
Recently acquired 75% of Budapest Airport for 1.3bn
On 16 June 2006, the BAA Board accepted a takeover offer from the
Ferrovial Consortium
Consortium consisted of Grupo Ferrovial, the lead partner, Caisse
de dpt et placement du Qubec and an investment company
managed by GIC Special Investments Pte Ltd
BAA de-listed from the London Stock Exchange on 15 August 2006
Ferrovial is now one of the world's leading infrastructures groups, with
a capitalisation which exceeds 8bn and over 78,000 employees
Consortium Structure
Ferrovial
CDPQ
c.62%
c.28%
GIC SI
UK vehicle required for UK tax

consolidation of new
indebtedness, thus disallowing
tax deductibility of acquisition
goodwill in Spain
16.3x / !23.6bn
4.3bn
Equity
12.1x
0.6bn
Toggle
0.4bn PIK
2.0bn
Junior Facility
9.1x
4.7bn
Senior Holdco
Share alternative,
listed in AIM
10%
FGP
Topco (UK)
90 95%
16.3x
EV/EBITDA
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Altitude
Assets (UK)
4.5x
5% 10%
ADI Holdings
(UK)
Acquisition
SPVs (UK)
Acquisition
Facilities
BAA (UK)
Existing
Debt
4.6bn
Existing Senior Opco
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Case Study (2): ABP
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Transaction Summary
Source: Factiva, company information
Financing Structure Overview

Boreaslis
GIC
Enterprise Value
GSIL
Infracapital
23.33%
10%
16.7x
33.33%
33.33%
16.7x / 3.4bn
1.1bn
Equity
Jersey Co
100%
Bond Co
11.5x
100%
Admiral Sub holdings

UK Limited
100%
Junior Acquisition
Debt Facility
Senior Acquisition
Debt Facility
Admiral
100%
EV/EBITDA
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Associated British Ports (ABP) owns, operates and develops ports and associated activities, including providing port facilities and
services to shippers and cargo owners
The largest port group in the UK, handling approximately a quarter of the countrys seaborne trade through its 21 ports located in
England, Scotland and Wales.
On 23 June 2006, Admiral Acquisitions, a consortium comprised of Borealis, GIC, GS IL and Infracapital, and ABP announced that
they had reached agreement on the terms of a recommended cash offer of 910 pence per share for the acquisition of the entire issued
share capital of ABP by Admiral
Offer valued ABPs existing share capital at c. 2,794m (EV equivalent to 16.3x 06E EBITDA) on a fully diluted basis
Employees: 3,030 (as of December 2005)
9.8x
Refinancing &
Capex Facility
ABPH
2.0bn
Senior
100%
Non Ports
Operations
ABP
0.4bn
Junior
Revolving Credit
Facility
Subsidiaries
Source: Company information memorandum
Source: Company information memorandum
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Case Study (3): London City Airport
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LCY 2006E Revenue and EBITDA Split(1)
Transaction Summary
Acquisition of 100% of London City Airport (LCY) by a
consortium comprising AIG Financial Products and CS/GE
Capitals new infrastructure investment JV, Global
Infrastructure Partners, announced on October 10, 2006
LCY was owned by private investor Mr Dermot Desmond, who
acquired the company in 1995
Total enterprise value of c. 750m
Debt at c. 405m senior, pricing grid based on leverage,
no rating requirements, 7 year bullet
Source: Factiva, company information
Revenues(2)
(Total: 50m(3))
EBITDA
(Total: 27m(4))
Jet Centre
12%
Jet Centre
12%
Non-Aviation
18%
Aviation
70%
Airport
88%
(1) December year end (2) Aviation and non-aviation revenues are airport revenues (3)
Revenues include cons. adjustment (not included in pie chart) Source: Company information
Key Financials and Implied Multiples
LCY Company Overview / Investment Highlights
Key Financials
Dec YE ( in millions)
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2004A
2005A
2006E
Revenues
Growth (%)
35.7
43.6
22.2%
50.1
14.9%
EBITDA
(1)
Growth (%)
Margin (%)
17.5
49.0%
21.2
21.1%
48.6%
27.2
28.3%
54.3%
Capex
Margin (%)
0.9
2.5%
2.7
6.2%
4.5
9.0%
LCY is a fast-growing, leading niche airport servicing mainly the

high yield business passenger market
Location next to Canary Wharf, largest corporate jet base in M25 area
2 million passengers in 2005 (19% increase on 2004)
15 domestic airlines operating scheduled routes to 27 different
destinations (20 European and 7 domestic)
(2)
VLM main customer (28% share in 2005), followed by SWISS (18%)

and BA (15%) no other airline more than 7% market share
Investment highlights
100% sale (no minorities)/100% freehold
Implied Multiples
Aeronautical charges not price regulated
2006E
( in millions)
Metric
Multiple
EV/Revenues
50.1
15.0x
Rapid growth in private jets (Netjets)
EV/EBITDA
27.2
27.6x
High levels of asset utilization/relatively new infrastructure
(1) Excludes non-recurring items and s106 costs (2) 2.5m relates to the unwinding of s106
provisions, Source: Company information
Expected to gain market share from LHR on European trunk routes
Source: Factiva, news releases, company information
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Case Study (4): Indiana Toll Road Financing

MIG and Cintra signed a 75-year lease on the ITR
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Acquisition price of $3.85bn has been reduced by $50m to

reflect interest rate movements between the preferred bidder
stage and sign-off
Type of finance: Non-recourse bank debt
Tranches:
Tranche A Acquisition, reserves and other expenses:

$3.28bn
Tranche B Liquidity: $100m
Tranche C Capex: $700m
Interest rate hedge: 100% hedged with step-up swap until

2026
Reserve and step-up swap accounts enable dividends to be
distributed from the outset
Sources and Uses

$USm
Sources
Bank Debt
MIG Equity
Cintra Equity
3,278.5
385.1
385.1
Total Sources
4,048.6
Uses
Payment to Indiana Finance Authority
Revenue Stabilisation Reserve
Fees payable to Macquarie for advisory
Other
3,850.0
100.0
32.6
66.0
Total Uses
4,048.6
Source: Macquarie presentation on Indiana Toll Road Acquisition
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Situation Overview
Equity
Gross Equity: $770m
Forecast IRR between 12.5% - 13.5% p.a.
Risk premium between 8.0% - 9.0% p.a. over US 10-yr bond
yield
Average expected yield of 2.6% p.a. over the first 5 years
Anticipated 15 year payback period to equity
Bank Facility
Bank Debt: $3.28bn
Bank Debt Tenor: 9 years
Interest Rate: LIBOR + Margin
Margins: ~0.9% - ~1.3%, ratchets with maturity
Partial cash sweep
Liquidity Facility
Liquidity Facility: $100m
Tenor: 9 years
Capex Facility
Capex Facility Size: $700m
Tenor: 9 years
Hedging Terms
Fully hedged debt profile for 20 years
Covers: Bank Facility, Liquidity Facility, Capex Facility
Swap rates step up gradually from 2006 to 2026, starting at
3% p.a.
Source: GIP estimates, Macquarie presentation on Indiana Toll Road Acquisition
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3.
Innovative Financing Tools
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Increasing Use of Complex Financing Solutions
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Progressive realisation by the lenders of

the attractive fundamentals and high
predictability of cash flows of
infrastructure assets
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Healthy competition amongst lenders
Increasingly aggressive and complex financial structures:
Unprecedented leverage levels (52.9x Debt / EBITDA for ITR deal)

Lower coverage ratio requirements
Higher proportion of non-amortizing debt
Financing swaps
Increasing lenders experience with

infrastructure deals
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Financing Swap Structures
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Special Structures 30yr Swap Hedging 7yr Loan

Ability to hedge a 7yr loan with a 30yr swap
(specifically 30yr swap with a step up coupon)
Due to inversion of GBP swap curve, cheaper

rates can be obtained by hedging longer
LCY was set up with the first 7yrs acting as a

hedge of the loan with the remaining being a
pre-hedge of future financings
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EURO, UK & US 30-Yrs SWAP Curves
6.0
5.5
5.0
4.5
4.0
3.5
3.0
1 1 2 3 4 5 6 9 1 2 3 4 5 7 10 15 20 30
Wk Mo Mo Mo Mo Mo Mo Mo Yr Yr Yr Yr Yr Yr Yr Yr Yr Yr
The step-up allows relief of first 2yr burden by

paying a lower fixed rate however this is
subsidised by higher rate in subsequent years
EUR
Step-Up Swap
An interest rate swap on which the coupon

increases according to a predetermined schedule
Accreting Swap
A swap where the notional principal that the swap

payments are based on, increase over time
Useful when risk exposure is expected to increase
over time
GBP
USD
Step-Up Swap
5.0%
4.5%
4.0%
3.5%
3.0%
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
MIG used this type of financing in its ITR

acquisition
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Swap Schedules
Both ratings agencies and debt providers are
becoming increasingly comfortable with the
analytical framework required to rate and
underwrite loans/bonds. Their primary focus in
assessing these transactions includes:
Specific cash flow characteristics of the assets
Strength of the overall business and its
prospects
Credibility of projections
Strength of structural provisions aimed at
protecting lenders and bondholders
Track record of management team
Indiana Toll Road

12%
10%
8%
6%
US Toll Roads Compaq

($ in millions)
Chicago Skyway
Indiana Toll Road
4%
2006
2007
2006
2007
Enterprise Value
1,830
1,830
3,800
3,800
Debt
1,550
1,550
3,279
3,279
EBITDA
40
41
62
85
Capex
20
10
47
73
EV / EBITDA
45.8x
44.6x
61.3x
44.7x
Debt / EBITDA
38.8x
37.8x
52.9x
38.6x
Statistics
10yrs EBITDA CAGR
13%
2%
01-Jul-06
01-Jul-07
01-Jul-08
01-Jul-09
01-Jul-10
01-Jul-11
01-Jul-12
01-Jul-13
01-Jul-14
01-Jul-15
01-Jul-16
01-Jul-17
01-Jul-18
01-Jul-19
01-Jul-20
01-Jul-21
01-Jul-22
01-Jul-23
01-Jul-24
01-Jul-25
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Swap Rate (incl. Swap Margin)
All-In Rate
12%
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Debt Financing: US Toll Roads
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Financing
Structuring Considerations
Recent U.S. toll roads acquisitions have been financed

initially through bridge financing.
Customized Zero-Coupon Note has been key to

achieving the target leverage:
During Zero-Coupon period:
Swap counterparty pays any stream of cash flows to
the issuer, which matches the coupon (or its swapped
equivalent coupon) the issuer pays to investors. These
cash flows are principal draw-downs
There are no current payments from the issuer to Swap
counterparty. Zero-Coupon interest due to the issuer
accretes periodically
After the Zero-Coupon period:
The issuer continues to pay semi-annual coupons on
the bonds to investors
Issuer also pays coupons on accreted Zero-Coupon
Note to Swap counterparty to maturity
Taken
out within a year following the financial close with

a mix of senior debt, subordinated debt and preferred
instruments
Potential
return on initial equity invested
Preliminary Financing Structure: Bid vs. Take-out

Senior Debt - Bullet
Bridge Financing
Senior Debt - Capital
Accretion
1. Zero-Coupon
Note:
Subordinated / Preferred
Equity @ 35-45%
Initial
Equity @ 25%
Refinancing
Swap
Counterparty
Fixed rate
coupon
Note
1. Structure to allow for

targeted return profile
2. Cash-pay
Bond:
Issuer
Coupon
payment
Bond
proceeds
Bond
Market
2. Structure to offer
terms attractive to the
investor base
This structure allows to customize cash flows to achieve targeted return requirements
26
CONFIDENTIAL
Toll Road Concessions

S&P Credit Rating Considerations
D
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CONFIDENTIAL
Client Logo
Innovative and sophisticated financings for Chicago Skyway and Indiana Toll Road
(extended concession period, increased debt quantum, deferred repayment) have led
S&P to re-assess their approach to investment grade credit rating for toll-road projects:
Long-term revenue assessment:
Unreliability of long-term traffic models
Conservative approach to traffic forecast
(<1% growth) and toll increase
Leverage level:
Recent projects >30x Debt/EBITDA
Only mature assets with strong historical
performance, robust legal environment and
predictable cash flow can achieve these
levels for investment grade rating
Additional debt issuance:
Only for project performing beyond
expectations
Debt issuance for shareholder distribution
and subordination carefully examined
Bullet repayment / non-amortising debt:
Need to ascertain if cash flows can support
the peaks induced later in the concession to
aggregate debt service requirements
DSCR:
As structures increasingly move away from
fully amortising debt, DSCR becomes less
relevant
Necessary analysis of expected repayment
profile
Dividend distribution:
Only when performance in line or beyond
expectations to preserve credit quality
Detailed analysis of lock-up tests
Swap transactions:
Potential credit issue if transaction is swapdependent
Assessment of minimum credit quality of
collateral posting
Replacement requirements if minimum
credit rating levels violated by counterparty
Refinancing:
Risk need to be factored into analysis
27
CONFIDENTIAL
US Infrastructure The New Class

ProjectFinance Magazine, Issue 275, November 2006
D
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With both pension funds and private equity firms showing

serious interest in infrastructure assets billions of dollars
are now being bestowed upon the sector changing how
infrastructure assets are financed, how deals are structured
and the pricing of infrastructure assets.
Over the past 24 months, more than $500 billion of

leveraged infrastructure purchasing power has been injected
into the US infrastructure space, says Rob Collins, executive
director and head of infrastructure M&A at Morgan Stanley.
But with the pace of development increasing, how such

deals are structured is changing. One banker familiar with the
market explains: These deals are moving into the realm of
leverage financing which has its own set of rules for doing
business. As a result, the rules are being thrown in the bin for
traditional infrastructure finance. If we look at debt-to-EBITDA
ratios, we are clearly seeing more leverage than could
traditionally be found for infrastructure finance.
I think the multiples are going up. It is definitely having

impact and will test the bank market Banks traditionally
look at investment grade or crossover deals, but it is not a
leveraged market. Those in the leveraged market do not
currently play in the infrastructure market. So clearly we will
need to see a change in this
CONFIDENTIAL
Client Logo
Banks are now looking at these assets in a different way,

according to Spence. These assets are longer term, with a
lower risk profile than traditional project finance deals, and
with quasi-monopolistic characteristics. They thus have a
high degree of confidence in the credit quality of such deals
and are therefore accepting more leverage than usual.
[Geoffrey Spence is the global head of infrastructure finance in
project and export finance at HSBC]
What they are getting for this is a better deal than in a

normal project finance transaction, but they are providing
terms that are competitive with traditional leveraged finance
markets. Most market players have the sophistication to deal
with this change ... to be comfortable with higher leverage
expanding the opportunities for project financiers.
The degree to which banks can aggressively leverage them,

depends on the length of the concessions on offer, and the
degree to which states insist on buyers sharing excess
profits. For the most long-term and least restricted assets,
multiples are likely to be high, and banks will need to extend
themselves to match.
At least one banker, asked whether the resulting structure [of

the Indiana Toll Road financing] was maybe a little
aggressive for buyers without strong banking relationships,
begged to differ. Theres no reason why banks shouldnt
accept the refinancing risk attached to these concessions,
given they often have a decades-long tail. If the statement is
in any way representative, lenders should be prepared for a
leveraged blowout.
28
CONFIDENTIAL
CONFIDENTIAL
Conclusion
D
2
R
3
A
4
F
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1
Client Logo
New asset class, likely to attract significant private capital
Increased allocation to infrastructure by most private/public pension funds
High growth markets such as India / China likely to get a large share
Innovation in financing to continue to drive infrastructure growth
29

Raj Rao

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CONFIDENTIAL

Infrastructure Financing : Recent Trends

Debt Financing Market

Innovative Financing Tools

Private investment in infrastructure assets is booming

Significant new money being raised for infrastructure investments

Increased competition for assets leading to higher valuations

Debt markets resilient and providing more flexible debt packages

Corporate restructurings in vogue: spin off/split off of infrastructure assets

Definition of infrastructure being expanded

(1) Project Finance magazine, Issue 275, November 2006

Huge Demand For Infrastructure Assets

Global Infrastructure M&A Deal Flow is over $300bn since 2003

by Type of Acquirer ($327bn)

Active management of infrastructure assets

Explosion in number and value of deals announced in last two years

Recent Infrastructure Acquisitions

Ente rprise Va lue (!bn)

Ontario Teachers' Pension Plan

Dubai World Ports

An Increasingly Competitive Sector

Increasing Investor Appetite

Existing infra funds

More direct investment

Additional Capital to the Sector Further Compounding Asset Demand

Interest Driven Towards New Areas

More interest in emerging markets

Demand growing for peripheral infrastructure

The infrastructure sector is moving towards a fully efficient market

Infrastructure Funds/ Investors

Last 18 months has seen an explosion of Infrastructure Funds

Out - performance of Infrastructure Stocks

Global Infrastructure (ex Utilities) Performance

Key risk statistics to 30 September 2006

Key risk statistics to 30 September 2006

UBS Global Infrastructure & Utilities Index

Corporate Restructuring: Ferrovial Case Study

Trend among listed infrastructure players to

Ferrovial Re-rating Timeline

Crystallising higher value has led to a re-rating of

Cintra 38% Minority Listing

Debt Financing Market

Investment Grade Characteristics of

Stable & Predictable

Regulated Asset Base

Visible & Predictable

Infrastructure Assets Generally Have Low Business Risks

Infrastructure Financing Key Characteristics

Pricing Lower than

Dividends from investment grade structure

Avoids de-leveraging unless its off plan

Sponsors are long-term holders & need yield

Security only allows control over the business

A consequential but normal cost of regulation

Business is valuable as going concerns only

Assets essential to infrastructure

Validity of leverage employed is via rating

Debt may be refinanced / repaid over 20-30 years

Concept is to keep assets leveraged

Senior facilities are investment grade

Aimed at corporate lenders / project finance

Priced at premium to investment grade loans

Underlying businesses have minimal volatility