Default and recovery rates for project finance bank loans, : Infrastructure sector hurt by demand risk

Transcription

1 SECTOR IN-DEPTH Default Research - Global TABLE OF CONTENTS Scope of this addendum Credit stress continued in the Western an transportation sector in 0 Distribution of projects and defaults Default rate analysis Recovery rate analysis Appendix: Glossary Moody's Related Research Notice re Data Consortium Default and recovery rates for project finance bank loans, -0: Infrastructure sector hurt by demand risk This addendum to our March 0 study examines the credit performance of a subset of,00 infrastructure-related projects in the study's larger data set of unrated project finance bank loans. We refer to this subset as Broad Infrastructure Project Finance. We further segment this subset to highlight the contrasting performance of projects with availability-based revenues against those exposed to volume (i.e. demand) or price risks. Our findings are as follows: Credit stress continued in the Western an transportation sector in 0. The default tally was nine in 0 for the Broad Infrastructure Project Finance subset and defaults were mostly Western an public-private partnership (PPP) transportation projects. The -year cumulative default rate increased to.% from.% reported in last year's addendum, but remains below the total study data average of.% and is consistent with corporate issuers of low investment-grade quality. Marginal default rates fall over time. Consistent with the findings of the March 0 study, marginal default rates, a measure of the likelihood that a performing obligor at the start of a year will default in that year, decline as a project completes construction and builds an operating track record. Marginal default rates for Broad Infrastructure Project Finance and PPPs are consistent with marginal default rates for Baa-rated corporates from year five after financial close. Availability-based PPP projects and availability-based projects lie at the low end of the risk spectrum. The -year cumulative default rate of.%, is below those of the Broad Infrastructure Finance subset and the total study data average. Marginal default rates are consistent with single-a rated corporates by year five from financial close. Non-availability based PPP projects and non-availability based projects exhibit high default risk during the initial project life. These projects are exposed to volume or price risks. Ten-year cumulative default rates of non-availability-based PPP projects (.%) and non-availability-based projects (.%) are more in line with Ba-rated corporates. Marginal default rates are consistent with low investment-grade rated corporates by year eight from financial close. Average ultimate recovery rates are consistent with the.% average for the entire study data set for -0. Excluding a single outlier with a 0% write-off, average ultimate recovery rates for all subsets exceed the average of the study data set. However, the majority of defaulted projects have yet to emerge from default. Contacts Kathrin Heitmann -- VP-Senior Analyst kathrin.heitmann@moodys.com Andrew Davison -0-- Senior Vice President andrew.davison@moodys.com Michael Mulvaney -- MD-Project Finance michael.mulvaney@moodys.com Walter J. Winrow -- MD-Gbl Proj and Infra Fin walter.winrow@moodys.com CLIENT SERVICES Americas --- Asia Pacific --0 Japan EMEA -0--

2 Scope of this addendum This addendum to our March 0 study is primarily concerned with the historical credit performance of a subset of,00 infrastructure-related projects contained in the study's larger data set of unrated project finance bank loans. We refer to this subset as Broad Infrastructure Project Finance. Findings in this addendum are consistent with those in March 0 and are also largely consistent with those in the previous September 0 addendum. However, this year we provide additional insight into default risk and recoveries for non-availability-based projects, i.e. those projects exposed to demand or price risks. For the first time we present non-availability-based PPP projects and nonavailability-based projects as distinct subsets to better contrast their credit performance with corresponding subsets of availabilitybased projects. The information in this addendum covers transactions originated globally from -0 and about % more broad infrastructure project finance projects than the September 0 addendum to the March 0 study. This year the Broad Infrastructure Project Finance cohort includes, infrastructure industry projects (for example, social and transportation infrastructure assets and services procured using project finance) and power transmission and distribution projects from the power industry sector in the March 0 study. The addendum does not focus on other sectors included in the larger study data set, such as Chemicals Production, Leisure and Recreation, Manufacturing, Media and Telecom, Metals and Mining, Oil and Gas and Power (other than transmission and distribution projects). We categorize the,00 Broad Infrastructure Project Finance projects into five groups, as shown in Exhibit : We classify broad infrastructure project finance projects into availability-based projects as well as non-availability-based projects. In addition, we analyze the, PPP projects included in the Broad Infrastructure Project Finance cohort and classify those into availability-based PPP projects and non-availability-based PPP projects. It is essential for the reader to understand the distinctions between the different universes in order to correctly interpret the charts and tables that follow. Exhibit The Broad Infrastructure Project Finance cohort is segmented into five different subsets Broad Infrastructure Project Finance (,00 projects) Non Availability-Based Availability-Based ( projects) Non Availability-Based (, projects) PPP projects (, projects) Availability-Based PPP projects ( projects) Non Availability-Based PPP projects (00 projects) Project count Default count (BII definition) Average ultimate recovery rate -year cumulative default rate (BII definition) Broad Infrastructure Project Finance,00.%.% PPP projects,.%.% Availability-based PPP projects.%.% Non-availability-based PPP projects 00 0.%.% Type of Project Availability-based projects 0.%.% Non-availability-based projects,.%.% Total Study Data Set, 0.%.% Note: Please be aware that the subsets overlap. Therefore, their sums do not add up to the total number of Broad Infrastructure Project Finance projects. Data has been collected for the period -0. This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on for the most updated credit rating action information and rating history.

3 We also segment the data set by three regions: the world, countries (Organization for Economic Co-operation and Development) and the an Economic Area (EEA or ). Around % of Broad Infrastructure projects are located in. For the purpose of this addendum, defaults are based on the Basel II definition of default. Definitions for some of the terms used in this report appear on the next page and in the glossary at the end of the report. This addendum should be read in conjunction with the broader March 0 study and is based on the same data set. The data presented in this addendum is sourced from the Data Consortium which is managed by Moody s Analytics. All analytics and statistics are compiled by Moody s Analytics on behalf of Moody s Investors Service; all market and industry commentary has been prepared by Moody s Investors Service. We wish to acknowledge and thank each of the financial institutions in the Data Consortium for supporting and contributing to the study and this addendum. Moody s occasionally discovers historical defaults, leading to minor revisions of the historical data. As always, the data contained in the most recently published Moody s default study supersedes the data published in the previous report. A note on corporate default rates: as part of the study and this addendum, we derived historical default rates for project finance bank loans and compared these against historical default rates for corporate bond and loan issuers rated by Moody s. We also compare the recovery behavior of project finance bank loans to the recovery behavior of a data set comprising corporate bank loans (predominantly senior secured debt facilities) derived from Moody s Ultimate loss given default (LGD) Database.

4 About the Study Data Set Here are additional explanations of the terminology used in this report. Broad Infrastructure Project Finance: Comprises,00 projects,, of which fall within the infrastructure industry sector and power transmission and distribution projects from the power sector in the March 0 study. Data subset of all, project finance bank loans contained in the March 0 study. PPP projects: In this addendum, a subset comprising, PPP projects of the Broad Infrastructure Project Finance data cohort. There is no standard definition of what constitutes a PPP. A PPP is often defined as a long-term contractual agreement between a public sector governmental entity and a private developer to design, build, finance, operate, and/or maintain an infrastructure asset for a specific period. The classification of a project as a PPP project in this addendum is based on the classification of the Data Consortium (see glossary) and involves some subjectivity. PPP projects are often referred to as P projects or PFIs (project finance initiatives). Availability-based projects: A subset comprising availability-based projects of the Broad Infrastructure Project Finance data cohort. 0% of the availability-based projects in this addendum are availability-based PPP projects. Availability payments are often sized to cover operating and maintenance costs, debt service costs and equity returns as the private entity operates the projects. Availability payments are not subject to swings in demand, such as traffic levels, and are adjusted typically only for poor performance or lack of availability of the asset. Availability-based projects provide higher cash flow certainty than demand risk projects, which are exposed to volatility in demand and revenues. Non-availability-based projects: A subset comprising, non-availability-based projects of the Broad Infrastructure data cohort. The subset includes projects that do not have an availability-based payment scheme but that are subject to demand or price risks. Concession or demand risk projects are often financed by user fees. Availability-based PPP projects: A PPP project with an availability-based payment scheme. Non-availability-based PPP projects: A PPP project with a non-availability-based payment scheme such as a concession or demand risk PPP. The model is often applied for toll roads or water, gas and electricity PPPs. Which definition of default are you using for the addendum? Consistent with the study data set, this report uses the Basel II definition of default (BII). What is the definition of a marginal default rate? A marginal annual default rate or marginal default rate is a measure of the likelihood a performing obligor will default in that year. What is the definition of a cumulative annual default rate? The cumulative annual default rate or cumulative default rate for a specific period is the probability that a credit defaults some time before or during that specific period. What is the ultimate recovery rate (Basel II default definition)? Recovery analysis for the March 0 study is based on the assumption that all senior secured project finance debt facilities for a single defaulted project would share the same ultimate recovery rate - and the study data set has been conformed accordingly. For additional explanations of the terminology used in this report, please see the glossary in the appendix as well as the March 0 study.

5 Credit stress continued in the Western an transportation sector in 0 The default tally was nine in 0 for the Broad Infrastructure Project Finance data cohort, slightly below the average annual default tally of for the period 00-0 but still high compared to the count of defaults before 00, as shown in exhibit. Around % of all Broad Infrastructure Project Finance defaults in the data set occurred during the period By project type and region, nearly all 0 defaults were transportation PPP projects and concentrated in Western. The -year cumulative default rate for the Broad Infrastructure Project Finance increased to.% from.% reported in the September 0 addendum as additional defaults in 0 and 0 were added to the dataset. As such, the initial moderation in credit stress that was observed for 0 in the September 0 addendum was not confirmed. However, the -year cumulative default rate for Broad Infrastructure Project Finance remains below the total study data average of.% and is consistent with the -year cumulative default rate for corporate issuers of low investment-grade credit quality. Exhibit Count of defaults for Broad Infrastructure Project Finance -0 Infrastructure Industry Sector Transmission & Distribution Broad Infrastructure Project Finance Default count 0 Default year Note: The default count for Broad Infrastructure Project Finance is the sum of the count of defaults for the Infrastructure Industry Sector subset and the count of defaults for transmission & distribution projects. The power transmission & distribution projects included in the Broad Infrastructure Project Finance data cohort experienced a spike in defaults in the years 00 and 00, which were mostly related to defaults in Argentina during the country's currency crisis. Exhibit displays the distribution of defaults by year for Broad Infrastructure Project Finance projects as well as the five subsets.

6 Exhibit Percentage of Defaults, by Year Broad Infrastructure Project Finance Default year Availability-based PPP projects PPP projects Non-availability-based PPP Availability-based projects projects Non-availability-based projects 0.%.0%.%.%.%.%.%.0%.%.0%.%.% 0.%.0%.0%.%.%.%.%.%.%.%.%.0%.%.%.%.%.%.0%.%.%.%.%.0%.%.%.%.0%.%.%.%.%.%.0%.%.%.%.% 000.%.0%.%.% %.0%.%.%.%.% 00.%.% 00.0%.%.%.%.%.%.%.%.%.0%.%.0%.%.0%.%.%.% %.%.%.%.%.%.%.%.%.%.%.% 00.%.%.%.%.%.%.%.%.%.0%.%.%.%.%.%.%.% 00.%.%.%.%.%.%.%.0% 00.%.%.%.%.%.%.%.%.%.%.%.%.% 0.%.%.%.%.%.%.%.%.0%.% 0.%.%.%.%.%.% 0.%.% 0.%.% 0.0%.%.%.%.%.0%.%.%.%.%.%.%.%.%.0%.%.%.%.%.%.%.0%.%.%.%.%.%.%.%.%.%.%.% 0.%.%.%.%.%.%.%.0%.%.% Total 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%.%.%.%.%.%.%.%.0%.%.%.%.0%.%.%.%.%.%.%.%.0%.%.%.%.%.%.%.%.%.0%.%.%.%.%.%.%.%.%.%.%.%.0% 0% 0% 0% 0% 0% 0% 0% 0% Notes: refers to projects located worldwide. refers to projects located in countries. A list of countries can be found in the glossary. refers to projects located in the an Economic Area (EEA). A list of EEA countries can be found in the glossary. Distribution of projects and defaults The Broad Infrastructure Project Finance data cohort and the different subsets have a high concentration in countries and an countries. Exhibit shows the geographic distribution of the Broad Infrastructure Project Finance cohort and its five subsets by project count and by default count. countries accounted for % of Broad Infrastructure Project Finance project counts, and an countries for about %. For availability-based projects and availability-based PPP projects, the weighting toward remains particularly pronounced, representing about 0% of the project count. This is not surprising given that an countries were among the first promoters of the availability-based PPP procurement framework. Financing for this typically highly leveraged asset class has been much more readily available in countries with a transparent and welldeveloped procurement framework, where the public sector has brought forward a pipeline of similarly structured transactions. Since the financial crisis of 00, deal volume has slowed down in an countries. The weighting toward is less pronounced for non-availability payment projects and non-availability PPP projects, representing about % and % of the project count respectively.

7 The noted observations on the geographical distribution of project counts and default counts by project type should be interpreted with caution since there is some subjectivity in the classification of projects as PPP and availability-based, and the number of defaults is relatively small. Exhibit Projects and defaults, by project type and region Project Count Default Count,00,,,,, , Broad Infrastructure Project Finance PPP projects Availability-based PPP projects Non-availability-based PPP projects Availability-based projects Non-availability-based projects Notes: refers to projects located worldwide. refers to projects located in countries. A list of countries can be found in the glossary. refers to projects located in the an Economic Area (EEA). A list of EEA countries can be found in the glossary. Default rate analysis Marginal annual default rates fall over time The observation of gradually declining marginal annual default rates as a project completes its construction phase and initial rampup phase of operations is consistent with the findings of the March 0 study and differentiates project finance bank loans from investment grade rated corporates which tend to experience more stable marginal annual default rates with the passage of time. Exhibit shows that for Broad Infrastructure Project Finance marginal annual default rates average around.0% for the first two years from financial close compared to around.% for the total study data. By year from financial close average marginal annual default rates have declined to 0.% for Broad Infrastructure Finance and to 0.% for the total study data. Exhibit shows marginal default rates by year from financial close for Broad Infrastructure Project Finance, segmented by project type and by region. For comparison, the exhibit also includes marginal default rates for the total Study Data Set as well as for Moody's-rated corporate bond and loan issuers in the A, Baa, Baa, Ba, Ba and Ba rating categories.

8 Exhibit Marginal annual default rates by project type and region for the period -0.0% 0.% 0.% 0.% 0.% 0.% 0.% 0.% 0.% 0.% 0.% 0.% 0.0% 0.% 0.% 0.% 0.% 0.% 0.% 0.% 0.% 0.% 0.% 0.0% 0.% 0.% 0.% 0.% 0.% 0.% 0.% 0.% 0.% 0.% 0.% 0.% 0.0% 0.% 0.% 0.% 0.% 0.0% 0.% 0.% 0.% 0.% 0.% 0.% 0.% 0.0% 0.% 0.% 0.% 0.% 0.% 0.% 0.% 0.0% 0.% 0.% 0.% 0.0% 0.% 0.% 0.% 0.% 0.% 0.% 0.% 0.0% 0.% 0.% 0.% 0.% 0.0% 0.% 0.% 0.% 0.% 0.0% 0.% 0.0% 0.% 0.% 0.% 0.% 0.% 0.% 0.% 0.%.%.0%.%.%.%.%.0% 0.% 0.% 0.%.0%.%.%.0%.0%.%.% 0.% 0.% 0.%.%.%.%.%.%.0%.%.0% 0.% 0.% 0.% 0.0% 0.% 0.0% 0.% 0.% 0.% 0.% 0.% 0.0% 0.% 0.% 0.% 0.% 0.0% 0.% 0.% 0.% 0.% 0.0% 0.% 0.% 0.% 0.% 0.% 0.% 0.% 0.% 0.% 0.%.%.%.0%.%.% 0.% 0.0% 0.% 0.% 0.%.%.%.%.%.% 0.% 0.% 0.% 0.0% 0.%.%.%.0%.%.%.00% 0.% 0.% 0.% 0.%.%.%.% 0.% 0.% 0.% 0.% 0.% 0.% 0.0% 0.0% 0.% 0.% 0.% 0.% 0.% 0.0% 0.% 0.% 0.% Moody's Baa 0.0% 0.% 0.% 0.% 0.% 0.% 0.% 0.% 0.% 0.% Moody's Baa 0.% 0.% 0.% 0.% 0.% 0.% 0.% 0.% 0.0% 0.0% Moody's Ba 0.%.0%.0%.%.%.%.% 0.% 0.%.0% Moody's Ba 0.%.%.%.%.%.%.0%.%.%.% Moody's Ba.0%.%.%.%.%.%.0%.%.%.% Broad Infrastructure Project Finance PPP projects Availability-based PPP projects Non-availability-based PPP projects Availability-based projects Non-availability-based projects Notes: refers to projects located worldwide. refers to projects located in countries. A list of countries can be found in the glossary. refers to projects located in the an Economic Area (EEA). A list of EEA countries can be found in the glossary. Marginal default rates: key takeaways We illustrate in the graphics that follow the marginal annual default rates for Broad Infrastructure Project Finance and for each of the five subsets, along with key takeaways. Marginal default rates on a worldwide basis Exhibit shows that marginal annual default rates for Broad Infrastructure Project Finance and PPPs are consistent with marginal annual default rates of low investment grade rated corporates from year five after financial close and with single-a rated corporates by year eight from financial close. Until year four from financial close marginal annual default rates for Broad Infrastructure Project Finance and PPPs are consistently lower than the average for the study data set but are aligned with the study data average in the following years. While the majority of the 0 annual default count can be attributed to PPP projects, their marginal annual default rates remain consistent with those of the Broad Infrastructure Project Finance cohort. Availability-based PPP projects and availability-based projects have consistently lower default risk than the study data set, the Broad Infrastructure Project Finance cohort or any other of its subsets. Marginal annual default rates for availability-based PPP projects and

9 availability-based projects are consistent with Baa-rated corporates in the initial four years from financial close and with single-a rated corporates by year five from financial close. Exhibit Marginal annual default rate for Broad Infrastructure Project Finance, PPP, availability-based, availability-based PPP Broad Infrastructure Project Finance Availability-based projects Moody's Baa PPP projects Moody's Ba Availability-based PPP projects Moody's Baa.00%.0%.00%.0%.00% 0.0% 0.00% Exhibit Marginal annual default rate for Broad Infrastructure Project Finance, PPP, non-availability-based, non-availability-based PPP Broad Infrastructure Project Finance Non-availability-based projects Moody's Ba.00% PPP projects Moody's Ba Non-availability-based PPP projects Moody's Baa Moody's Ba.0%.00%.0%.00%.0%.00% 0.0% 0.00% Exhibit shows that non-availability-based PPP projects and non-availability-based projects, which are exposed to volume and price risks, have substantially higher default risk than the study data average, the Broad Infrastructure Project Finance data cohort and total PPP projects. Marginal default rates for these two subsets fall in between Ba-rated and Ba-rated corporates in the initial years from financial close. They gradually trend towards marginal default rates of low investment grade rated corporates by year eight from financial close. This suggests that non-availability based PPP and non-availability based projects need to establish a longer operational track record before default risk subsides materially. Marginal default rates for Broad Infrastructure Project Finance, by region Marginal default rates are initially consistent with borderline investment grade rated corporate issuers, falling in between marginal default rates observed for Ba and Baa-rated corporate issuers, in the first five years after financial close. Marginal annual default rates are consistent with single A-rated corporate issuers by year seven from financial close across all regional subsets. Marginal annual default rates show little variation by region. Only in the initial years after financial close marginal annual default rates are marginally lower in than in the region, and both are marginally lower than the worldwide rate.

10 Exhibit Marginal annual default rates for Broad Infrastructure Project Finance, by region Moody's Baa.00% Moody's Ba Moody's Ba Moody's Ba Marginal default rates.0%.00%.0%.00%.0%.00% 0.0% 0.00% Marginal default rates for PPP projects, by region Marginal annual default rates are consistent with those of the Broad Infrastructure Project Finance data cohort. They are consistent with borderline investment grade-rated corporate issuers in the first five years after financial close and decline to levels consistent with single A-rated corporates by year seven from financial close. Marginal annual default rates show less variation by region than reported in the previous September 0 addendum for the period -0. The vast majority of the PPP default tally for 0 was concentrated in. Exhibit Marginal annual default rates for PPP projects, by region Moody's Baa Moody's Ba Moody's Ba Moody's Ba.00% Marginal default rate.0%.00%.0%.00%.0%.00% 0.0% 0.00% Marginal default rates for availability-based PPP projects, by region Projects with availability-based payment mechanisms have consistently lower default risk than the Broad Infrastructure Finance cohort and all PPP projects, most likely because they are less exposed to market risks. Marginal annual default rates are consistent with single A-rated corporate issuers by year four across all regional subsets. Marginal annual default rates are consistent across regions.

11 Exhibit Marginal annual default rates for availability-based PPP projects, by region Moody's Baa Moody's Ba Moody's Ba Moody's Ba.00%.0% Marginal default rate.00%.0%.00%.0%.00% 0.0% 0.00% Marginal default rates for non-availability based PPP projects, by region Marginal default rates fall in between Ba-rated and Ba-rated corporates in the initial years from financial close. They gradually trend towards marginal default rates of Baa-rated corporates after year eight from financial close. The data suggests that non-availability based PPP projects need to establish a longer operational track record before default risk subsides materially. Exhibit Marginal annual default rates for non-availability-based PPP projects, by region Moody's Baa Moody's Ba Moody's Ba Moody's Ba.00% Marginal default rate.0%.00%.0%.00%.0%.00% 0.0% 0.00% Marginal default rates for availability-based projects, by region The majority of availability-based projects are availability-based PPP projects. Marginal annual default rates tend to fall over time from financial close and are consistent with single A-rated corporate issuers by year four across all regional subsets. Marginal annual default rates in are consistent with marginal default rates worldwide and in countries.

12 Exhibit Marginal annual default rates for availability-based projects, by region Moody's Baa Moody's Ba Moody's Ba Moody's Ba.00% Marginal default rate.0%.00%.0%.00%.0%.00% 0.0% 0.00% Marginal default rates for non-availability based projects, by region Marginal default rates fall in between Ba-rated and Ba-rated corporates in the initial years from financial close and gradually trend towards marginal default rates of Baa-rated corporates by year eight from financial close. Non-availability-based projects have slightly lower marginal annual default rates than non-availability-based PPP projects only. Marginal annual default rates show limited differences by region. Exhibit Marginal annual default rates for non-availability-based projects, by region Moody's Baa Moody's Ba Moody's Ba Moody's Ba.00% Marginal default rate.0%.00%.0%.00%.0%.00% 0.0% 0.00%

13 Cumulative default rates Cumulative default rates for the Broad Infrastructure Project Finance data cohort remain below those observed for the total study data average for the period -0. Ten-year cumulative defaults for Broad Infrastructure Project Finance are consistent with those of low investment-grade rated corporates. Exhibit tabulates cumulative default rates by year from financial close for Broad Infrastructure Project Finance, segmented by project type and by region. For comparison, the exhibit also includes cumulative default rates for the total Study Data Set as well as for Moody's-rated corporate bond and loan issuers in the A, Baa, Baa, Ba, Ba and Ba rating categories. Exhibit Cumulative annual default rates by project type and region for the Period -0 Broad Infrastructure Project Finance.0%.0%.%.%.%.%.%.%.%.% 0.%.%.%.0%.%.%.%.%.%.% 0.%.%.%.0%.%.%.%.0%.%.% 0.%.%.%.%.00%.%.%.%.0%.% 0.%.%.%.%.%.%.%.0%.%.% 0.%.%.%.%.%.%.%.0%.%.0% 0.% 0.% 0.%.%.%.%.%.%.0%.% 0.% 0.% 0.%.%.%.%.%.%.0%.% 0.% 0.%.00%.%.%.%.0%.0%.%.%.%.%.0%.%.%.%.0%.%.%.%.0%.%.%.%.0%.%.%.%.0%.%.%.%.%.%.%.%.0%.%.0%.% 0.% 0.% 0.%.%.%.%.%.%.0%.% 0.% 0.% 0.%.%.%.%.%.%.0%.0% 0.% 0.%.0%.%.0%.%.%.%.%.%.%.%.%.0%.%.%.0%.%.%.%.%.%.%.0%.%.%.0%.%.%.%.%.%.%.%.%.0%.%.%.%.0%.%.%.0%.%.%.0%.%.%.%.% 0.0% 0.% 0.% 0.% 0.%.%.%.%.%.% Moody's Baa 0.0% 0.% 0.%.%.%.%.0%.0%.%.% Moody's Baa 0.% 0.%.%.%.%.%.%.%.%.% Moody's Ba 0.%.%.%.%.%.%.%.%.%.% Moody's Ba 0.%.%.%.%.%.%.%.%.%.% Moody's Ba.0%.%.%.%.%.%.00%.%.%.% PPP projects Availability-based PPP projects Non-availability-based PPP projects Availability-based projects Non-availability-based projects Notes: refers to projects located worldwide. refers to projects located in countries. A list of countries can be found in the glossary. refers to projects located in the an Economic Area (EEA). A list of EEA countries can be found in the glossary. Comparative cumulative corporate default rate data was reproduced from Moody s Special Comment, Corporate Default and Recovery Rates, -0, February 0, see Exhibit and Exhibit. Cumulative default rates: key takeaways We illustrate in the graphics that follow the cumulative annual default rates for Broad Infrastructure Project Finance and for each of the five subsets, along with key takeaways.

14 Cumulative default rates on a worldwide basis The -year cumulative default rate for the Broad Infrastructure Project Finance data cohort increased to.% from.% reported in last year's addendum as defaults were added to the default tally mostly in 0 and 0. For the same reason, the -year cumulative default rate for PPP projects increased to.% from.% reported in last year's addendum. This -year cumulative default rate for the Broad Infrastructure Project Finance data cohort is in line with the one reported for the infrastructure sector in the March 0 study. Availability-based PPP projects and availability-based projects continue to lie at the low end of the risk spectrum. The -year cumulative default rate for these subsets increased modestly to.% from.% reported in last year's addendum due to additional defaults recorded in 0. These cumulative default rates remain well below those of the Broad Infrastructure Finance subset and any other industry sector in the March 0 study and are largely consistent with those of single-a rated corporates. Exhibit Cumulative annual default rate for Broad Infrastructure Project Finance, PPP, availability-based, availability-based PPP Broad Infrastructure Project Finance Moody's Baa PPP projects Moody's Ba Availability-based PPP projects Availability-based projects.0% Cumulative default rate.0%.0%.0%.0%.0% from Financial Close Years Non-availability-based PPP projects and non-availability-based projects have higher -year cumulative default rates than the other subsets in this addendum and are more in line with Ba and Ba-rated corporates. However, -year cumulative default rates for the two subsets are comparable to those of other industry sectors included in the March 0 study data set. Exhibit Cumulative annual default rate for Broad Infrastructure Project Finance, PPP, non-availability-based, non-availability-based PPP Broad Infrastructure Project Finance Non-availability-based projects Cumulative default rate.0% PPP projects Moody's Baa Moody's Ba Non-availability-based PPP projects Moody's Ba Moody's Ba.0%.0% from Financial Close Years Cumulative default rates for Broad Infrastructure Project Finance, by region The -year cumulative default rate for Broad Infrastructure Project Finance worldwide is.%, in line with the cumulative default rate for the infrastructure industry sector within the March 0 study.

15 The gap between cumulative default rates in and cumulative default rates within the has continued to narrow since our last update in September 0 due to a higher count of an defaults in 0. Cumulative default rates are fairly consistent across regions. Exhibit Cumulative annual default rates for Broad Infrastructure Project Finance, by region Moody's Baa Moody's Ba Moody's Ba.0% Cumulative default rate.0%.0%.0%.0% Cumulative default rates for PPP projects, by region The -year cumulative default rate for PPP projects worldwide is.%, slightly below the -year cumulative default rate of.% for the Broad Infrastructure Project Finance cohort and the Infrastructure industry sector within the March 0 study. Cumulative default rates are consistent across regions. Exhibit Cumulative annual default rates for PPP projects, by region Moody's Baa Moody's Ba Moody's Ba.0% Cumulative default rate.0%.0%.0%.0% Cumulative default rates for availability-based PPP projects, by region The -year cumulative default rate for availability-based PPP projects is around.%, substantially lower than the cumulative default rate for the Broad Infrastructure Project Finance cohort or any other industry sector in the March 0 study. Cumulative default rates in, and worldwide are consistent with one another. Cumulative default rates are in line with those of single-a rated corporates.

16 Exhibit Cumulative annual default rates for availability-based PPP projects, by region Moody's Baa Moody's Ba Moody's Ba.0% Cumulative default rate.0%.0%.0%.0% Cumulative default rates for non-availability-based PPP projects, by region The -year cumulative default rate for non-availability-based PPP projects is around.%, substantially higher than the -year cumulative default rate for the Broad Infrastructure Project Finance cohort or the March 0 study data average. Cumulative default rates in, and worldwide are consistent with one another. Cumulative default rates fall in between those of Ba and Ba-rated corporates. Exhibit 0 Cumulative annual default rates for non-availability-based PPP projects, by region Moody's Baa Moody's Ba Moody's Ba Moody's Ba.0% Cumulative default rate.0%.0% Cumulative default rates for availability-based projects, by region The majority of availability-based projects are availability-based PPP projects and therefore, findings for the two subsets are consistent with one another. The -year cumulative default rate for availability-based projects is around.%, substantially lower than the cumulative default rate for the Broad Infrastructure Project Finance cohort or any other industry sector in the March 0 study. Cumulative default rates in, and worldwide are consistent with one another. Cumulative default rates are in line with those of single-a rated corporates

17 Exhibit Cumulative annual default rates for availability-based projects, by region Moody's Baa Moody's Ba Moody's Ba.0% Cumulative default rate.0%.0%.0%.0% Cumulative default rates for non-availability-based projects, by region The -year cumulative default rate for non-availability-based projects is around.%, slightly below the -year cumulative default rate of.% for non-availability-based PPP projects only. The -year cumulative default rate is substantially higher than the -year cumulative default rate for the Broad Infrastructure Project Finance cohort or the March 0 study data average. Cumulative default rates in, and worldwide are consistent with one another. Cumulative default rates fall in between those of Ba and Ba-rated corporates and approach those of Ba-rated corporates by year from financial close. Exhibit Cumulative annual default rates for non-availability-based projects, by region Moody's Baa Moody's Ba Moody's Ba Moody's Ba.0% Cumulative default rate.0%.0%.0%.0%.0% -.0%

18 Recovery rate analysis The average ultimate recovery rate for Broad Infrastructure Project Finance (.%) realized through a work-out process remains fairly consistent with the average ultimate recovery rate of.% (Basel II definition) for the entire study data set. Ultimate recovery rates are fairly consistent across regions. However, average ultimate recovery rates fall within a wide range from 0% to 0%. % of projects for which average ultimate recovery rates are available realized a recovery rate of 0% and were restructured without a loss, with no particular concentration in a specific country. The average ultimate recovery rate for Broad Infrastructure Project Finance and certain subsets includes a single availability-based PPP project in that realized a 0% write-off. We regard a full write-off for such projects as highly unusual, since availabilitybased PPPs typically provide for material compensation to debt providers following project termination. It is possible that some level of recovery may be reported at a future date. Excluding this single outlier, average ultimate recovery rates for all subsets would exceed the average of the study data set and the average ultimate recovery rate for PPP projects, availability-based PPP projects and availabilitybased projects would increase to around 0% across all regions. Ultimate recovery rates for the majority of defaults are still unknown as most have yet to emerge from default. Data on ultimate recovery rates are available for close to % of all defaults in the Broad Infrastructure Project Finance subset and only limited recovery rate data is available for projects that defaulted during the 0-0 time frame. On average, defaulted Broad Infrastructure Project Finance projects in the data set needed about. years to emerge from default. The average recovery rates and standard deviations reported in Exhibit for some of the subsets should be interpreted with caution given the small population size. For comparison purposes, Exhibit includes average ultimate recovery rate data derived from Moody s published research on default and recovery rates for corporate loans.

19 Exhibit Comparison of average ultimate recovery rates for Broad Infrastructure Project Finance Average Recovery Standard Deviation All Corporate Loans 0.% 0.% Recovery Count Corporate Senior Secured Loans.%.% Study Data Set (Basel II Definition of Default) Broad Infrastructure Project Finance.%.%.%.%.%.%.%.%.%.%.%.%.%.%.%.0%.%.%.%.% 0.%.%.%.%.0%.0% 0.%.%.%.%.%.%.%.0%.%.%.%.% Project Finance Bank Loan Study Data Set (-0) PPP projects Availability-based PPP projects Non-availability-based PPP projects Availability-based projects Non-availability-based projects Note: refers to projects located worldwide. refers to projects located in countries. A list of countries can be found in the glossary. refers to projects located in the an Economic Area (EEA). A list of EEA countries can be found in the glossary. Ultimate recovery rates presented in the exhibit only include average ultimate recovery realized through a work-out process and does not include ultimate recovery rates achieved through distressed sale exits.

20 Exhibit Variability of ultimate recovery rates standard deviation > mean (capped at 0%); standard deviation < mean 0% 0% 0% Non-availabilitybased projects Availabilitybased projects Corp Sr Sec Loans Study Data Set (B II) 0% All Corp Loans Non-availabilitybased PPP projects Availabilitybased PPP projects PPP projects Broad Infrastructure Project Finance 0% Ultimate Recovery Rate 0% 0

21 Appendix: Glossary Basel II Framework International Convergence of Capital Measurement and Capital Standards: A Revised Framework (Comprehensive Version: June 00)," published by the Basel Committee on Banking Supervision at Corporate Bank Loan Data Set A data set of corporate bank loans (predominantly senior secured) derived from Moody s Ultimate LGD Database. Cumulative Default Rates Cumulative default rates are calculated from the weighted average marginal default rates (hazard rates) for all cohorts, based on the methodology described in Section. (Cohort Analysis: -0) of the March 0 study. A consortium of leading project finance lenders and investors that provide historical portfolio and credit loss data to Moody's Analytics for the purpose of creating an aggregate data set. A default based on the Basel II definition of default. We include below, relevant extracts from the Basel II Framework: Data Consortium Default (BII). A default is considered to have occurred with regard to a particular obligor when either or both of the two following events have taken place. The bank considers that the obligor is unlikely to pay its credit obligations to the banking group in full, without recourse by the bank to actions such as realizing security (if held). The obligor is past due more than 0 days on any material credit obligation to the banking group. Overdrafts will be considered as being past due once the customer has breached an advised limit or been advised of a limit smaller than current outstandings.. The elements to be taken as indications of unlikeliness to pay include: The bank puts the credit obligation on non-accrued status. The bank makes a charge-off or account-specific provision resulting from a significant perceived decline in credit quality subsequent to the bank taking on the exposure. The bank sells the credit obligation at a material credit-related economic loss. The bank consents to a distressed restructuring of the credit obligation where this is likely to result in a diminished financial obligation caused by the material forgiveness, or postponement, of principal, interest or (where relevant) fees. Default (Moody s) The bank has filed for the obligor s bankruptcy or a similar order in respect of the obligor s credit obligation to the banking group. The obligor has sought or has been placed in bankruptcy or similar protection where this would avoid or delay repayment of the credit obligation to the banking group. A default based on Moody s definition of default. Moody s definition of default includes four types of credit events: A missed or delayed disbursement of a contractually-obligated interest or principal payment (excluding missed payments cured within a contractually allowed grace period), as defined in credit agreements and indentures; A bankruptcy filing or legal receivership by the debt issuer or obligor that will likely cause a miss or delay in future contractuallyobligated debt service payments; A distressed exchange whereby ) an obligor offers creditors a new or restructured debt, or a new package of securities, cash or assets that amount to a diminished financial obligation relative to the original obligation and ) the exchange has the effect of allowing the obligor to avoid a bankruptcy or payment default in the future; or A change in the payment terms of a credit agreement or indenture imposed by the sovereign that results in a diminished financial obligation, such as a forced currency re-denomination (imposed by the debtor, himself, or his sovereign) or a forced change in some other aspect of the original promise, such as indexation or maturity. Moody s definition of default does not include so-called technical defaults, such as maximum leverage or minimum debt coverage violations, unless the obligor fails to cure the violation and fails to honor the resulting debt acceleration which may be required. Also excluded are payments owed on long-term debt obligations which are missed due to purely technical or administrative errors which are ) not related to the ability or willingness to make the payments and ) are cured in very short order (typically, - business days). Finally, in select instances based on the facts and circumstances, missed payments on financial contracts or claims may be excluded if they are the result of legal disputes regarding the validity of those claims. Emergence From Default For a loan which has defaulted, emergence from default is deemed to occur following any of the events set out below: Repayment of overdue interest. Restructuring with no subsequent default. Restructuring with lender being taken out of the deal for example, by repayment of the defaulted loan with no participation in a restructured debt facility. Material restructuring. Liquidation. an Economic Area (EEA) The EEA contains the EU Member States and the three EEA EFTA States (Iceland, Liechtenstein, and Norway). For additional information and a list of all EU Member States, please see: and Marginal Default Rate The marginal default rate (hazard rate) is the ratio of the number of project defaults in a specific time period divided by the number of projects exposed to the risk of default at the beginning of that time period. For the purposes of this Study, marginal default rates have been calculated on a monthly basis. The currently has member countries: Australia, Austria, Belgium, Canada, Chile, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Israel, Italy, Japan, Korea, Latvia, Luxembourg, Mexico, Netherlands, New Zealand, Norway, Poland, Portugal, Slovakia, Slovenia, Spain, Sweden, Switzerland, Turkey, United Kingdom, and United States. This report is based on the member countries the had as of December, 0. Latvia joined the as its th member on July, 0.

22 Project Finance We reproduce below the Basel II definition of Project Finance:. In general, a corporate exposure is defined as a debt obligation of a corporation, partnership, or proprietorship. Banks are permitted to distinguish separately exposures to small- and medium-sized entities (SME), as defined in paragraph.. Within the corporate asset class, five sub-classes of specialized lending (SL) are identified. Such lending possesses all the following characteristics, either in legal form or economic substance: The exposure is typically to an entity (often a special purpose entity (SPE)) which was created specifically to finance and/or operate physical assets; The borrowing entity has little or no other material assets or activities, and therefore little or no independent capacity to repay the obligation, apart from the income that it receives from the asset(s) being financed; The terms of the obligation give the lender a substantial degree of control over the asset(s) and the income that it generates; and As a result of the preceding factors, the primary source of repayment of the obligation is the income generated by the asset(s), rather than the independent capacity of a broader commercial enterprise. 0. The five sub-classes of specialized lending are project finance, object finance, commodities finance, income-producing real estate, and high-volatility commercial real estate. Each of these sub-classes is defined below. Project finance. Project finance (PF) is a method of funding in which the lender looks primarily to the revenues generated by a single project, both as the source of repayment and as security for the exposure. This type of financing is usually for large, complex and expensive installations that might include, for example, power plants, chemical processing plants, mines, transportation infrastructure, environment, and telecommunications infrastructure. Project finance may take the form of financing of the construction of a new capital installation, or refinancing of an existing installation, with or without improvements. PPP Study Data Set Ultimate Recovery (BII). In such transactions, the lender is usually paid solely or almost exclusively out of the money generated by the contracts for the facility s output, such as the electricity sold by a power plant. The borrower is usually an SPE that is not permitted to perform any function other than developing, owning, and operating the installation. The consequence is that repayment depends primarily on the project s cash flow and on the collateral value of the project s assets. In contrast, if repayment of the exposure depends primarily on a well-established, diversified, credit-worthy, contractually obligated end user for repayment, it is considered a secured exposure to that end-user... A public sector procurement structured as a Public Private Partnership. There is no standard definition of what constitutes a PPP. A PPP is often defined as a long-term contractual agreement between a public sector governmental entity and a private developer to design, build, finance, operate and/or maintain an infrastructure asset for a specific period. The classification of a project as a PPP project in this addendum is based on its classification by the Data Consortium and involves some subjectivity. PPP projects are often referred to as P projects or as PFI projects procured under the UK Government's Private Finance Initiative. The aggregated data set for the Study, based on data provided by the Data Consortium. The Study Data Set includes, projects which account for some.0% of all project finance bank loans originated globally during a period from January to December 0. A default (BII) for which recoveries have been realized following Emergence From Default.

23 Moody's Related Research Default Research: Default and Recovery Rates for Project Finance Bank Loans, -0, March 0 (0) Default and Recovery Rates for Project Finance Bank Loans, -0 Addendum, September 0 () Default and Recovery Rates for Project Finance Bank Loans, -0: Project Type and Jurisdiction Matter, January 0 () Annual Default Study: Corporate Default and Recovery Rates, -0, February 0 () Annual Default Study: Corporate Default and Recovery Rates, -0, February 0 () Infrastructure Default and Recovery Rates, -0, July 0 (0) Addendum: Infrastructure Default and Recovery Rates, -0, April 0 () US Corporate Default and Recoveries: Lessons from Years of Chapter ', December 0 () To access any of these reports, click on the entry above. Note that these references are current as of the date of publication of this report and that more recent reports may be available. All research may not be available to all clients.

24 Notice re Data Consortium The data presented in this Study is sourced from the Data Consortium which is managed by Moody s Analytics. All analytics and statistics are compiled by Moody s Analytics on behalf of Moody s Investors Service; all market and industry commentary has been prepared by Moody s Investors Service. For questions about the Moody s Analytics Project Finance Data Consortium or the data in this report, please contact Kevin Kelhoffer, Director Data Strategy, Moody s Analytics (+ ; kevin.kelhoffer@moodys.com). For all other questions and inquiries please contact the author(s) cited in this report. Moody s Analytics would be pleased to hear from other banks or financial institutions that may be interested in participating in the Data Consortium.

25 Endnotes Please see the appendix (glossary) for a list of countries that are considered countries as well as a list of countries in the an Economic Area. We reproduce the Basel II definition of default and the Moody's definition of default in the appendix (glossary). The Basel II definition of default captures a wider range of defaults than Moody's definition, including circumstances in which the reporting bank considers that the obligor is unlikely to pay its credit obligations in full. Please see section and of the Basel II Framework International Convergence of Capital Measurement and Capital Standards: A Revised Framework (Comprehensive Version: June 00) published by the Basel Committee on Banking Supervision. For instance comparative cumulative corporate default rate data were reproduced from Moody s Special Comment, Corporate Default and Recovery Rates, -0, February 0, see Exhibit and Exhibit. Exhibit and show issuer-weighted historical average default rates by rating category over various investment horizons. These data were generated by averaging the multi-year default rates of cohorts formed at monthly intervals. For example, over a -year period a portfolio of Baa-rated issuers defaulted at a.% average rate between and 0. Moody's proprietary database which contains information on over,00 defaulted loans and bonds taken from,000+ non-financial US corporations that initially defaulted between -0.