Unlisted Infrastructure Debt Valuation & Performance Measurement

Long-term infrastructure debt poses a significant pricing challenge since market prices cannot be observed, private cash flow data is scattered amongst originators and investors, and the covenants and lender control-rights found in such instruments create embedded options that are not taken into account in the loan and bond valuation models typically used by lenders and investors. Taking these characteristics into account is instrumental to capture the expected performance of infrastructure debt, in particular, its high level of post-default recovery. However, existing analyses have so far ignored the endogenous nature of credit risk in project finance and rely on ad hoc credit risk assumptions. 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 longterm investors in infrastructure.