EDHEC-Risk Institute releases the first robust yet implementable valuation method for infrastructure debt and defines data collection needed

Written on 31 July 2014.


Long-term infrastructure debt poses a significant pricing challenge with no market prices, private cash flow data scattered amongst originators, and covenant structures creating "embedded options" that are not taken into account in standard valuation models. Taking these characteristics into account is instrumental to capturing the expected performance of infrastructure debt.

Using advanced credit risk modelling and debt valuation techniques, this paper focuses on delivering those performance measures that are the most relevant to investors at the strategic asset allocation level, and to prudential regulators for the calibration of risk weightings. It also defines parsimonious data input requirements. Hence, we can realistically expect to deliver these performance measures at a minimal data collection cost.

Using well-documented parameter estimates, the authors show that infrastructure debt has a dynamic performance profile and that risk levels are strongly influenced by lenders' options to restructure or liquidate. Overall, risk levels are found to be low and expected recovery high. The paper also highlights the existence of a trade-off between credit risk and duration risk which is unique to infrastructure debt.

This paper is one of the stepping stones of the "roadmap" established by EDHEC-Risk Institute towards the creation of adequate performance measurement tools for long-term investors in infrastructure.

A copy of “Unlisted Infrastructure Debt Valuation and Performance Measurement” can be downloaded via the following link:

EDHEC-Risk Publication Unlisted Infrastructure Debt Valuation and Performance Measurement

This research was supported by Natixis as part of the research chair at EDHEC-Risk Institute on “Investment and Governance Characteristics of Infrastructure Debt Instruments.”

See Also

- 08-09-2017
Ranked 4th in France, EDHEC reinforces its position in the world’s Top 20 (16th place) in the 2017 Financial Times Master in Management Ranking, among prestigious international institutions...
- 30-08-2017
EDHEC welcomes students and participants who are back to school in the upcoming weeks. A positive and international atmosphere (more than 100 nationalities expected) shines through our...
Innovation with limited resources (Video)
- 18-08-2017
The article "Innovation with Limited Resources: Management Lessons from the German...
Station F successfully inaugurated in the presence of Emmanuel Macron and EDHEC
- 29-06-2017
EDHEC announced this May that it had joined Station F, the world’s biggest start-up...