29.1.1 Project bonds were often used to finance Public Private Partnerships both in the UK and internationally. These bonds benefitted from a AAA guarantee, or "wrap", provided by the monoline credit insurance industry. Since the demise of the monoline industry in 2008 Public Private Partnerships, in the UK, have been largely dependent on the bank loan market as the provider of long term debt finance.
29.1.2 The UK and European project finance debt markets have been badly affected by the euro sovereign debt crisis and downturn in the global economy. As a result the cost of long term borrowing for infrastructure projects has increased sharply and the availability of long term bank debt has materially diminished. In some cases traditional project finance banks have withdrawn from the market altogether.
29.1.3 In order for future privately financed projects, to secure long term debt on cost efficient terms projects will need to secure alternative sources of finance including bond finance PF2 projects will therefore need to be structured in such a way that they facilitate access to the capital markets or other sources of long term debt finance.
29.1.4 The institutional investor and pension fund industry has expressed interest in investing in UK infrastructure. Given the requirement of these types of investor it is likely that the form of debt instrument used, to provide a long term stable receipts to match maturing liabilities, will be a bond or have 'bond like' characteristics, whether publically traded or privately placed.