Fitch finds infra ratings resilient to downturn

Fitch, the ratings agency, has released a new report tracking how the global financial crisis affected the credit quality of infrastructure transactions and the outcome is good news for infrastructure investors.
 
“In general, infrastructure transactions have demonstrated significant rating stability through the downturn,” writes Fitch, adding that “those transactions that have suffered due to economic factors have generally seen only modest downgrades”. In fact, the average credit quality of these transactions over the past three years has only deteriorated by less than a notch.
 
When ratings were significantly revised downwards, Fitch found the downgrades had less to do with the economic crisis than with “idiosyncratic, transaction-specific factors”.
 
The overall resilience of infrastructure ratings is mostly due to the monopolistic characteristics of many of these assets, which “receive income from public sector counterparties and are also not overly-exposed to pure market risks”; the structure of project finance deals, which rely on “limited recourse vehicles provided with substantial liquidity,” enabling them to withstand temporary shocks; and the conservative assumptions built into the ratings process, argues Fitch.
 
Still, Fitch admits that “the sample [it] is using for this report may be somewhat biased, as rated projects tend to be of higher-than-average credit quality,” since ratings are usually requested prior to public or private placements, “typically at investment-grade level,” the agency points out.
 
Fitch is not the only ratings agency to note the resilience of infrastructure to economic shocks. In late November, Moody’s, another ratings agency, found that “European infrastructure companies could potentially be resilient to the effects of declining sovereign quality”. In some cases, that could see them being “rated at the level of the sovereign rating or up to two levels higher”, Moody’s wrote.