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Announcement:

Moody's: Default And Recovery Study Reveals Resilience Of Project Finance Bank Loans

20 Oct 2010

London, 20 October 2010 -- Moody's Investors Service has undertaken a study of historical project finance bank loan default and recovery rates based on a large pool of aggregated data from a consortium of leading sector lenders.

According to the results of this study, project finance is a resilient class of specialised corporate lending. The analysis covers the default and recovery performance of project finance bank loans.

The aggregate data set accounts for almost 45% of all project finance transactions originated worldwide between 1 January 1983 and 31 December 2008, and is substantially representative of global project finance activity by year of origination, industry sector and regional concentration.

"The study shows that the 10-year cumulative default rate for project finance bank loans, is consistent with 10-year cumulative default rates for corporate issuers of low investment-grade / high speculative-grade credit quality," says Andrew Davison, Senior Vice President in Moody's Project Finance Group, and a co-author of the report. "The study also shows that ultimate recovery rates for project finance bank loans have been consistently high over time, across regions, and across industry sectors, although the variation of ultimate recovery rates by industry sector is pronounced. Ultimate recovery rates averaged 76.4%."

In the report, Moody's notes that average ultimate recovery rates for projects emerging from default during 2000-2008 were between 63.0% and 88.2%, but were substantially independent from both the economic cycle at default and the economic cycle at emergence throughout this period. Calendar years before 2000 were excluded from this observation due to their small sample sizes.

The rating agency highlights incremental risk for projects during construction compared with projects in steady-state operations. In particular, the study shows that projects in construction have suffered both higher annual default rates, and lower ultimate recovery rates than projects in steady-state operations.

The report also notes that the study revealed that the average ultimate recovery rate for work-outs (76.4%) has been substantially higher than the average recovery rate achieved through distressed sale exits (47.8%); i.e., average economic losses have been much worse for those lenders that have sold defaulted loan participations.

A key part of the study involved Moody's comparing the recovery behavior of project finance bank loans with the recovery behavior of a data set comprising corporate bank loans derived from Moody's Ultimate LGD database. The study shows that ultimate recovery rates for project finance bank loans are broadly similar to ultimate recovery rates for corporate bank loans, despite features such as high gearing and long tenor that are typical for project finance loans, but generally associated with higher risk corporate loans. "However, Moody's also found that ultimate recovery rates for project finance bank loans display counter-cyclical characteristics which act to diversify risk, compared with vanilla corporate bank loans. For example, ultimate recovery rates are substantially uncorrelated with certain factors that are key determinants of ultimate recovery rates for general corporate debt facilities, such as the legal jurisdiction of the defaulted company, the presence of contractually subordinated debt, and default rates," adds David Keisman, Senior Vice President in Moody's LGD data area, and a co-author of the report.

The report, titled "Default and Recovery Rates for Project Finance Bank Loans, 1983-2008" is available on www.moodys.com

NOTE TO JOURNALISTS ONLY: For more information, please contact New York Press Information +1-212-553-0376; EMEA Press Information in London +44-20-7772-5456; Juan Pablo Soriano in Madrid +34-91-310-1454; Alex Cataldo in Milan +39-02-914-81-100; Eric de Bodard in Paris +331-5330-1020; Daniel Kolter in Frankfurt +49-69-707-30-700; Mardig Haladjian in Limassol +357-25-586-586; Alex Sazhin in Moscow +7-495-228-60-60; Petr Vins in Prague +4202 2422 2929; Tokyo Press Information +813-5408-4110; Hilary Parkes in Toronto +1-416-214-1635; Hong Kong Press Information +852-3758-1350; Hector Lim in Sydney +612 9270 8102; Luiz Tess in São Paulo +5511-3043-7300; Alberto Jones Tamayo in Mexico City +5255-1253-5700; Daniel Rúas in Buenos Aires +54 11-4816-2332 ext. 105; Leon Claassen in Johannesburg +27-11-217-5470; Jehad el-Nakla in Dubai +971 4 237 9536; or visit our web site at www.moodys.com

London
Andrew Davison
Senior Vice President
Global Project Finance
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

New York
David Keisman
Senior Vice President
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom

Moody's: Default And Recovery Study Reveals Resilience Of Project Finance Bank Loans
No Related Data.
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