The main effects of the financial crisis on the PPP funding markets can be summarized as follows:
- The financial crisis has substantially reduced the financing available for PPP projects.
- Project finance and PPP lending is competing for scarce regulatory capital and the opportunity cost for banks and capital market investors of PPP lending has, therefore, increased.
- The bank syndicated loan market is not operating and deals are closing as "club" transactions (see below).
- Bank margins have increased substantially from pre crisis levels, and senior debt tenors have reduced (although the increase in rates is partially offset by the reduction in base rates).
- There is a high degree of selectivity on the part of banks and a general lack of consistency in the terms and conditions required by funders, making forward planning more difficult for procurers.
- No viable capital market solution has emerged to replace the wrapped bond market which closed with the demise of the monoline business.
Although there are signs of easing, there have been some fundamental changes in the PPP finance market. Some banks have partially or wholly withdrawn for the project finance market. There is also evidence that previously active international players have become more orientated to their domestic markets. As a consequence, there has been a significant reduction in the number of deals that have reached financial close since the onset of the crisis. There has also been an impact on the number of new projects initiated during that period.