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2017 Inaugural Infrastructure Default Study and Rating Transitions

Highlights

- Infrastructure experienced positive rating movement in 2017, with 114 upgrades and 87 downgrades, reversing negative trends in 2015 and 2016. There were also seven defaults in the year.

- The rated global infrastructure sector has experienced essentially uninterrupted growth over the past 25 years. The majority of the sector is rated 'A' or 'BBB' by S&P Global Ratings. However, the proportion of speculative-grade ratings has increased in the past decade.

- Movement of infrastructure ratings has trended negative since 1981, and all industries within infrastructure except social infrastructure exhibit negative rating movement. Over the long term, infrastructure credits show a lower likelihood of default and higher ratings stability than the broader non financial segment.

- The stability of infrastructure ratings has been consistent with historical default experience at different time horizons. From 1981-2017, the one-, three-,and five-year Gini coefficients were 80%, 71%, and 65%, respectively.

- However, Gini coefficients were not as high for certain sub sectors. Social infrastructure, transportation, and utility coefficients over a three-year horizon were high, at 99.5%, 83.5%, and 68.9%,respectively, but power and oil and gas had low Gini coefficients of 42.9% and 9.7%, respectively.

- Infrastructure defaults show some regional concentrations, with the U.S. accounting for 90 of the 127 defaults (or 71%) in infrastructure, followed by Latin America with 16%; Europe,the Middle East, and Africa (EMEA) with 13%; and Asia-Pacific with less than 1%.

- Recoveries are generally higher for infrastructure than for non financial corporates. In addition,within infrastructure, corporate infrastructure ratings have higher recovery rates than project finance infrastructure.

Nov. 20 2018 — The rated global infrastructure sector has grown substantially over the years, while maintaining lower risk than the overall non financial corporate sector. By most measures, infrastructure credit rated by S&P Global Ratings have shown lower default rates, lower ratings volatility, and higher recovery prospects than non financial corporates. Some of this is attributable to the infrastructure sector's stronger ratings profile, but most of these trends hold true at comparable rating levels as well.

Nonetheless, differences exist among sub sectors within infrastructure. The infrastructure project finance sub sector tends to exhibit more frequent defaults and greater ratings volatility than infrastructure corporates. Meanwhile,within infrastructure corporates,the utilities sub sector shows particularly stable performance,largely due to its high proportion of regulated utilities.

Rating movement was positive in infrastructure in 2017, with 114 upgrades and 87 downgrades, reversing negative trends in 2015 and 2016. In addition,there were seven defaults in the year,the same number as in 2016. The 2017 figure includes two obligations that were not rated at the beginning of 2017 and thus do not qualify for rating transition calculations, which are defined by various time horizons of one year or longer.

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