Permission to reprint or distribute any content from this presentation requires the prior written approval of Standard & Poor’s.Copyright (c) 2006 Standard & Poor’s, a division of The McGraw-Hill Companies, Inc. All rights reserved.

DLA Piper Infrastructure Roundtable

Michael WilkinsDirector, International Project Finance Association

June 26, 2008

2.Permission to reprint or distribute any content from this presentation requires the prior written approval of Standard & Poor’s.

Infrastructure: the story so far…

• 2006: $342 billion invested in infrastructure deals worldwide

• 2007: $322 billion invested, despite turn in the credit cycle

– Infrastructure acquisitions = big growth area in syndicated loan market

• 2008: Deals still being done & infrastructure funds still being raised

FSTA Pennsylvania Turnpike Airtricity

£2.5bn £1.1bn £7.3bn

Soaring levels of M&A activity

Driven by asset hungry infrastructure funds

3.Permission to reprint or distribute any content from this presentation requires the prior written approval of Standard & Poor’s.

The flight to quality

• Infrastructure funds have become beneficiary of the credit crisis

• Global Infrastructure Partners, backed by Credit Suisse & GE, raised $5.6bn

• Morgan Stanley backed fund raised $4bn

Combined demand for funds approx. $4bn more than expected

• Investors attracted to unique characteristics of infrastructure:

• Essential and long-term nature

• Strong competitive position

• Stable, predictable consumer demand and cash generation

• Low correlation to equity markets and other main assets therefore provide valuable diversification

• Assets ideal match for wide range institutional investors needing long-term, inflation-linked cash-flows

Pension funds

Insurance companies

All attractive in face of economic slowdown

4.Permission to reprint or distribute any content from this presentation requires the prior written approval of Standard & Poor’s.

The rise of infrastructure funds

2004: - 4 funds = $1.4bn

2006: - 20 funds = $16.6bn

2008: - 5 funds = $13.2bn

- 58 funds = $79bn in pipeline

Funds outperforming market:

First State Global Infrastructure fund 7.7%

Macquarie Global Infrastructure Securities is up 4.4%

FTSE All-Share Index 1.4%

5.Permission to reprint or distribute any content from this presentation requires the prior written approval of Standard & Poor’s.

What are funds looking for?• Recent movement towards blending traditional and new

financing solutions by sponsors

– Providing sophisticated financial products to demanding investors

– Increasing overall leverage

– Optimizing sponsor’s returns

Strong business profiles/robust cash flows of infrastructure assets

Strong covenant packages, supportive structural features

Allow infrastructure assets to be more highly leveraged at investment-grade credit quality

But leverage has reached unprecedented levels

6.Permission to reprint or distribute any content from this presentation requires the prior written approval of Standard & Poor’s.

Valuation trends

7.Permission to reprint or distribute any content from this presentation requires the prior written approval of Standard & Poor’s.

Valuation trends 2

8.Permission to reprint or distribute any content from this presentation requires the prior written approval of Standard & Poor’s.

Infrastructure finance boom

Global Infrastructure Volumes: record figures 2006 &2007

Source: Thomson Financial

9.Permission to reprint or distribute any content from this presentation requires the prior written approval of Standard & Poor’s.

2008: Over leveraged?

Infrastructure finance boom

Favorable debt terms traded v.s. the management of credit risk

Now the in the global credit markets

Leveraged infrastructure loans left paralyzed under current market conditions &

purchasers unable to refinance acquisition facilities

10.Permission to reprint or distribute any content from this presentation requires the prior written approval of Standard & Poor’s.

Case study: BAA

• Ongoing delays in the refinancing of legacy bonds & acquisition

debt

– Delays to the execution of a sustainable long-term financing solution at a

time when consolidated liquidity and undrawn facilities are starting to

tighten

November 21, 2007: Corporate credit ratings lowered to ‘BB-’ from

‘BBB+’

April 16, 2008: Ratings on bonds lowered to ‘BBB-’ from ‘BBB+’

• All ratings on CreditWatch Developing

– S&P may raise, lower, or affirm the ratings.

11.Permission to reprint or distribute any content from this presentation requires the prior written approval of Standard & Poor’s.

Credit issues & risks

Public policy issues • Infrastructure companies are being taken private – proving

detrimental to credit quality

Escalating acquisition prices have impacted credit quality• Valuation multiples & special dividends

• Equity shares

Increasingly aggressive balance sheets to fend off threat of acquisition• Exemplified by BAA’s defence tactics (although unsuccessful!)

• Offered special shareholder capital return in 2007 of £750 million

Term “infrastructure” being stretched to accommodate appetite• New assets being labelled infrastructure, but lacking key

characteristics (car parks? ferry companies? service stations?)

New financing structures • Increasing leverage at expense of creditor protections Fusion of leveraged finance and infrastructure finance

12.Permission to reprint or distribute any content from this presentation requires the prior written approval of Standard & Poor’s.

Growth of hybrid structuring techniquesTo finance increased asset valuations

Leveraged Finance + Project Finance

“Infrastructure Acquisition Finance”

Cheaper debt and softer terms

But is there more risk…?

13.Permission to reprint or distribute any content from this presentation requires the prior written approval of Standard & Poor’s.

The need for sensible lending

• Volatile credit markets now making financing more difficult

– Cost of borrowing increased

– Returns to shareholders decreased

• Infrastructure funds need to attain strong credit quality to

encourage sensible lending?

Quality of asset

Quality of cash flow

Appropriate financial structure

14.Permission to reprint or distribute any content from this presentation requires the prior written approval of Standard & Poor’s.

Infrastructure performing well

• Despite current turmoil…

– Monoline meltdown

– Lack of lending & liquidity

• Infrastructure credits performing well

– Corporates operating as expected

– Servicing debt appropriately

• But weak covenants mean only time will tell if credits will crash

– Restructuring to avoid default

• Credit quality determined by:

Quality of assets Quality of cash-flow

15.Permission to reprint or distribute any content from this presentation requires the prior written approval of Standard & Poor’s.

Analytic services and products provided by Standard & Poor’s are the result of separate activities designed to preserve the independence and objectivity of each analytic process. Standard & Poor’s has established policies and procedures to maintain the confidentiality of non-public information received during each analytic process.

www.standardandpoors.com