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05 Mar 2018
New York, March 05, 2018 -- Moody's Investors Service has released its annual study on default
and recovery rates for project finance bank loans, which examines
7,052 global project finance transactions during a 34 year period
from 1 January 1983 to 31 December 2016. For the projects in the
data set, Moody's found a 10-year cumulative default
rate of 6.4% and an average recovery rate of 79.3%,
consistent with the findings of last year's study.
The updated study, "Default Research: Default and Recovery
Rates for Project Finance Bank Loans, 1983-2016,"
confirmed that marginal default rates for project finance bank loans are
similar to marginal default rates for high speculative-grade corporate
issuers during the first three years following financial close.
They fall over time, however, and trend toward rates consistent
with the single-A rating category by year seven following financial
Ultimate recovery rates for project finance bank loans are similar to
ultimate recovery rates for senior secured corporate bank loans,
according to the report. The most likely recovery rate remains
100%, however, which is observed in over 60%
"Our findings continue to suggest that the risk allocation,
structural features, underwriting disciplines and incentive structures
characterizing the project finance asset class have proven effective,"
says Kathrin Heitmann, a vice president and senior analyst at Moody's,
and a co-author of the report.
The study, which updates a previous report from March 2017,
is 10% larger and accounts for approximately 64% of all
project finance transactions originated globally between 1983 and 2016.
It is based on data provided by a consortium of project finance lenders
and investors managed by Moody's Analytics. For the first time,
the study includes a summary of key findings for a curtailed time horizon
and a comparison of the credit performance of certain subsets of projects
by economy type.
Curtailing the time horizon to 1995-2016 results in modestly lower
default rates, but recovery rates show limited variation when compared
to the full data set.
Analysis of cumulative default rates for various regions suggests that
cumulative default rates tend to vary by project jurisdiction, with
cumulative default rates below or close to the study average in OECD countries,
European Economic Area countries and high-income economies.
The data set reveals no clear indication if project jurisdiction has a
material impact on recovery rates.
For the 1,650 public-private partnerships (PPPs) included
in the study, the 10-year cumulative default rate was 4.3%,
representing a decrease from the 5.2% rate reported in the
March 2017 study. The average ultimate recovery rate for PPPs remained
unchanged, and exceeded that of the study data set as a whole.
Neither Moody's Investors Service nor Moody's Analytics verifies the data
submitted for the study. The report is available to Moody's
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