The following is a summary of commercial banks' interest in the infrastructure markets, the potential depth of their involvement, the timing and role that they may take, and the pricing of the debt. A major source of funding for infrastructure projects is the commercial bank debt market, which is often referred to as senior debt, as it ranks highest in the priority of payments. Historically, banks have been attracted to this sector for a number of reasons, including:
• The infrastructure sector may give the bank an ability to match its long-term liabilities, such as mortgages or pensions, with a long-term asset.
• It gives diversity to the bank's loan book.
• Depending on the contractual structure, the sector can potentially provide an alternative to government-issued bonds (i.e., gilts or treasuries).
There is evidence that the highly structured nature of some types of infrastructure investments can mean that the debt is relatively low-risk when compared with other fixed-income alternatives. This will mean, however, that the risk has been transferred to junior debt and equity-not that it has disappeared altogether.
Over the next few pages, we will describe some of the key features of the commercial debt markets, including:
• the amount of debt,
• timing-when to involve banks,
• organization of banks, including syndicated and club deals,
• pricing,
• mini-perms, and
• terms of lending.