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What is Infrastructure Debt?
Infrastructure debt finances projects, assets or companies that provide essential services in strategic sectors of the economy. Investments can include debt that finances airports, tollroads, power plants and renewable energy. Additionally, it can also include investments secured by infrastructure related assets, such as aircraft, rolling stock and telecom towers.
Why Infrastructure Debt?
Historically, institutional investors have invested in infrastructure mostly through private equity. Infrastructure debt, however, is a nascent investment opportunity that has arisen over the past several years due to increasing regulatory constraints on infrastructure lending (such as Basel III). Commercial banks, which have traditionally been the largest lenders to infrastructure projects, are reducing their exposure leaving a funding gap that needs to be filled by other institutions. We believe investors in this emerging asset class can potentially benefit from:
- Historically lower default rates than traditional corporates1
- Historically higher recovery rates than traditional corporates1
- Strong underlying fundamentals
- High barriers to entry; often monopolistic assets
- Inelastic demand for essential services
- Predictable cash flows due to project contracts
DoubleLine Global Infrastructure Debt Strategy
By combining infrastructure bonds with infrastructure asset-backed securities, DoubleLine strives to obtain:
- Higher yield than the Bloomberg Barclays U.S. Aggregate Index
- Lower Duration2 through amortizing structures
- Risk Mitigation through collateralization of hard assets
- Diversification from traditional core fixed income strategies3
- Exposure to strategic sectors of the economy
Seek the best relative value opportunities in the infrastructure debt sector.
Value oriented and research driven process that combines bottom-up research with DoubleLine’s macroeconomic views. This process leverages the team’s expertise and knowledge in investing in infrastructure related debt.
1. Moody’s, “Infrastructure Default and Recovery Rates, 1983-2015.” Cumulative Default Rates for Baa Corporate Infrastructure DebtSecurities is 2.74% compared to 3.39% for Non-Financial Corporate Issuers. Average Corporate Senior Secured Infrastructure Debt Securities recovery rate is 74 % compared to Average Non-Financial Corporate Issuers 54%. Average Corporate Senior Unsecured Infrastructure Debt Securities recovery rate is 56 % compared to Average Non-Financial Corporate Issuers 38%. as measured by Moody’s.
2. Duration – A measure of the sensitivity of the price of a fixed income investment to a change in interest rates, expressed as a number of years.
3. Traditional core fixed income strategies include government, corporate and mortgage securities.
Bloomberg Barclays U.S. Aggregate Index represents securities that are SEC-registered, taxable, and dollar denominated. The index covers the US investment grade fixed rate bond market, with index components for government and corporate securities, mortgage pass-through securities, and asset-backed securities. These major sectors are subdivided into more specific indices that are calculated and reported on a regular basis. It is not possible to invest in an index.