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In This List

Infrastructure Issues: Tools to Dig Deep on Potential Risks

Infrastructure Issues: Understanding and Mitigating Risks

Credit Risk and Infrastructure Issues: At the Crossroads of a Potential $15 Trillion Problem

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Infrastructure Issues: Tools to Dig Deep on Potential Risks

This is the third and final blog in a series about infrastructure projects. You can access the other two blogs here:

Infrastructure Issues: At the Crossroads of a Potential $15 Trillion Problem

Infrastructure Issues: Understanding and Mitigating Risks

The demand for new infrastructure is large, and rated global infrastructure displays strong credit quality and low risk.[1] However, how do potential market participants reliably evaluate the specific level of risk related to a project? Broad risk assessment factors can be captured in a model or scoring framework to support a consistent analysis across diverse projects. 

S&P Global Market Intelligence’s Project Finance suite of tools provides a framework for the analysis of Project Finance transactions, regardless of the industry or sector in which they operate. The suite comprises Probability of Default (PD) and Loss Given Default (LGD) Scorecards that bring together statistically validated PD and LGD methodologies, quantitative and qualitative risk factors, and market benchmarks to build a single, robust assessment framework to identify and manage Project Finance credit risks.

The Project Finance PD Scorecard

The Project Finance PD Scorecard generates credit scores that are designed to broadly align with credit ratings by S&P Global Ratings.[2] This Excel-based tool has been in use by a wide range of institutions for over two decades to help identify and manage pertinent project finance risks. Common uses include:

  • Financial and non-financial risk management.
  • Pricing of loans, guarantees, and insurance premiums.
  • Financial reporting under local or international standards (e.g. CECL or IFRS9).
  • Structuring projects in order to achieve an identified set of objectives (e.g., reduction of emissions).

 

A mix of quantitative and qualitative questions in a check-box style are used to identify key risks. This is transparent, whereby the underlying logic is provided to users (including weights). The elements considered in project management risk assessment are shown in Figure 1. 

Figure 1: Elements in Project Management Risk Assessments

 

Source: S&P Global Market Intelligence Project Finance PD Scorecard, July 23, 2020. For illustrative purposes only.

A user guide or handbook is also provided in order to help with the correct and consistent application of the methodology. An example for one sub-factor is presented in Figure 2.

Figure 2: Example for a Sub-Factor

Source: S&P Global Market Intelligence Project Finance PD Scorecard, July 23, 2020. For illustrative purposes only.

The Project Finance LGD Scorecard

The Project Finance LGD Scorecard is designed to estimate the potential loss experienced by an exposed party, assuming the project is in default. The Scorecard produces point estimates of loss, capturing even the smallest changes in the value of inputs, which is crucial in the proof-of-concept stage of a project where sensitivity analysis is key. This is achieved via the use of readily-available and predictive inputs, as shown in Figure 3.

Figure 3: A Snapshot of Inputs for the Project Finance LGD Scorecard

Source: S&P Global Market Intelligence Project Finance LGD Scorecard, July 23, 2020. For illustrative purposes only.

With a better understanding of possible risks associated with project finance, using tools such as the S&P Global Market Intelligence Scorecards, additional private capital may come forward to help meet the large unfilled demand for infrastructure projects.

                                                                                          


[1] “Rated Global Infrastructure Displays Strong Credit Quality And Low Risk”, S&P Global, April 2018.

[2] S&P Global Ratings does not contribute to or participate in the creation of credit scores generated by S&P Global Market Intelligence. Lowercase nomenclature is used to differentiate S&P Global Market Intelligence PD credit model scores from the credit ratings issued by S&P Global Ratings.

For more information on the Project Finance Scorecards
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Credit Risk and Infrastructure Issues: At the Crossroads of a Potential $15 Trillion Problem

Learn more

Infrastructure Issues: Understanding and Mitigating Risks

Learn more