The European Investment Bank (EIB) has approved a £50 million (€57 million; $81 million) investment to Hadrian's Wall, a subordinated debt fund being raised by start-up debt advisory firm Hadrian's Wall Capital and Aviva Investors, the asset management arm of the world's fifth-largest insurer.
Marc Bajer, chief executive of Hadrian's Wall, told Infrastructure Investor the EIB's investment was a significant contribution toward the fund's first close, which is targeted to take place during the first half of this year.
The idea behind Hadrian’s Wall is for the fund to provide subordinated debt positions for capital markets investors with the intent of enhancing the underlying BBB ratings of infrastructure projects. Subordinated debt ranks below senior debt and above equity and is typically more expensive than senior debt because of ranking.
Following the demise of the monolines, which traditionally insured bonds issued for infrastructure projects, institutional investors have found it hard to access the infrastructure market. The main problem is that they do not have the in-house expertise to deal with construction risk – the chief culprit in dragging infrastructure projects below investment grade.
By providing structuring, credit and monitoring services, the new vehicle appears to be positioning itself as one of the first private sector solutions to cater to this need. Hadrian's Wall's Bajer used to spearhead the European business of one of the only monolines that survived the crisis.
In addition to Hadrian's Wall and other competing debt funds, several initiatives from the public sector are being considered to help revive the €100 billion European infrastructure bond market that thrived from 2000 to 2007.
These include a proposal from the European Commission and the EIB to enhance the creditworthiness of infrastructure bonds issued by private sector concessionaires to investment grade rating; a securitisation vehicle from the French government to allow institutional investors to buy infrastructure bonds without taking on project risk; and a pilot road project in the Netherlands that proposes to index availability payments to inflation in order to access pension funding.