Debt funds offer an alternative means to bring institutions' money to the infrastructure market. The concept is to transform standard institution funding into project debt, arguably the most adaptable instrument for financing PPPs.
The vehicle will, in turn, issue long term debt to project SPVs. It will probably be necessary to provide the fund with a liquidity facility to cover the mismatches between the disbursement and repayment profiles of the bonds.
The vehicle will add its cost of capital and risk premium on top of its base funding costs (i.e. the cost of A rated bonds).
Another approach is to raise long term debt directly from institutions and pool it into a lending vehicle. The vehicle will provide structuring, due diligence and monitoring services to the lending institutions.
PROS: This could be a way to "transform" long term institutional money into plain project debt. Debt has proved to be the instrument most adapted to project finance.
CONS: Although often mentioned as an option, it is an entirely untested approach and many market participants are sceptical of its feasibility.