Out-Law News 1 min. read

Eurozone uncertainty leads to negative outlook for transport infrastructure according to Moody's


European transport infrastructure projects will continue to be adversely affected by ongoing economic uncertainty in the eurozone, according to ratings agency Moody's.

Although companies located in northern Europe, particularly in the airport sector, would be less affected than those in "peripheral EU countries", a new report published by the agency said the outlook for the sector overall during the next 12-18 months was "negative". If the quality of government credit declines further, it said, transport infrastructure companies could see their own credit ratings cut.

"If government credit quality declines further in certain countries, the effect may be sufficient as to have a negative impact on the credit quality and hence ratings of transport infrastructure companies located in those counties," said Andrew Blease of Moody's, author of the report. "This is especially the case if the decline is accompanied by a deeper credit contraction due to funding stress and policy induced banking system deleveraging."

The report anticipated an increase in private sector financing for projects due to "scarcer" and "more expensive" bank loan availability as a result of a lack of credit. Larger and more established transport infrastructure companies would, it said, remain able to access credit on better terms than other market participants.

Infrastructure law expert Graham Robinson of Pinsent Masons, the law firm behind Out-Law.com, said that encouraging private funding of public infrastructure projects was the only solution given the levels of public debt in Europe.

"Growth in institutional investment will need governments to re-think how construction risk is dealt with, if governments are to attract institutional investment in delivering new infrastructure assets," he said. "We expect growth in private funding from alternative sources, such as sovereign wealth funds and infrastructure funds, as well as alternative funding models forming the majority of growth."

This growth in private funding was not restricted to Europe, he added, as public debt was still relatively high in the US and emerging markets such as India and Egypt.

UK Prime Minister David Cameron has already acknowledged the need for "urgent" private infrastructure investment, particularly in relation to the road network. In a speech at the Institution of Civil Engineering in March, he said that the Government needed to be "more ambitious" in looking at "innovative approaches" to increase road funding.

The Treasury and Department for Transport will report in the autumn on the feasibility of "new ownership and financing models" for the national road system, such as through concession agreements or a regulated asset base (RAB) model like that in use in the water sector. Under an RAB model, fees for gaining access to the use of an asset under Government control are centrally regulated. Cameron has also suggested the introduction of road tolling, but only for newly-constructed projects.

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