Higher Risk Weightings for Project Finance Unnecessary – S&P

Project finance loans are substantially less risky than unsecured corporate credits, according to a report by Standard & Poor’s. This asset class has exhibited lower-than expected default rates and higher-than-assumed recovery rates, said the ratings agency. The study’s summary findings concluded that project finance loans are substantially less risky than unsecured corporate loans. They are comparable with well-structured secured leveraged financings. The findings were reached by Standard & Poor’s Risk Solutions team, which carried out the research on behalf of a consortium of banks. The results are expected to hearten bankers concerned that the Basle II Models Task Force intends to impose higher-risk weightings on project finance than on corporate loans. Such weightings should prove to be unnecessary, said Standard & Poor’s. ‘The findings offer the clearest confirmation yet of what many in the project finance market always believed to be the case,’ said Michael Wilkins, Managing Director of Infrastructure and Leveraged Finance Ratings at Standard & Poor’s. ‘Project finance credits are among the best structured assets available in the debt market from both a default and recovery perspective.’


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