Foreign banks move in as US infrastructure deals take off

The US infrastructure finance market is expected to develop over the next couple of years, drawing more foreign investment banks and infrastructure investors to Wall Street.

Royal Bank of Scotland became the latest to see the growth potential by last week appointing Dana Levenson, former chief financial officer and architect of Chicago's privatisation plans, to spearhead the development of its North American infrastructure finance and advisory business.

Jay Levine, chief executive of RBS’s global banking and markets business in North America, said the bank believed infrastructure financing was an emerging asset class in the US, and Levenson's hire was a coup, given his experience.

Levine said: “Having led a number of innovative infrastructure transactions, Levenson has strong knowledge of this asset class. As chief financial officer for the third largest city in the US, he also understands the political landscape of monetising assets.”

While RBS and rivals such as Credit Suisse and Australia’s Macquarie Bank have played a part in the US infrastructure market, it is only in the past three years that the asset class has opened up.

The infrastructure finance market could yield toll road and airport assets worth a combined enterprise value of up to $525bn (€393bn), according to Goldman Sachs. Underpinning this growth is the accelerating sweep of privatisation, say observers.

With federal, state and local governments facing budget squeezes, US policymakers are aiming to privatise their highways and airports, encouraged by investment banks seeking fees for financing the deals.

The first move was in 2005 when a private partnership paid $1.8bn (€1.4bn) for the right to operate the 7.8-mile Chicago Skyway, an elevated road stretching from the city's south side to the Indiana state border.

Levenson worked on that first privatisation of a US toll road and led the $563m sale of Chicago's downtown parking system to private investors.

Indiana has since leased its 157-mile turnpike for 75 years for $3.8bn, while other states, including New York, New Jersey and Delaware, have considered privatising toll roads.

Infrastructure financing has been lucrative for large investment banks, such as RBS, because of the large and complex amounts of debt underwritten and sold to investors.

However, RBS has steered clear of investing its own equity, unlike rivals such as Macquarie and Goldman Sachs.

The privatisation of Chicago’s Midway Airport would mark the first sale of a big US airport and is expected to raise about $3bn.

Private equity groups and infrastructure specialists, such as Macquarie, Singapore’s Temasek, Ferrovial, Cintra and the US’s General Electric, are expected to express interest. However, the big carriers using the airport have yet to agree terms.

The development comes a year after private equity group Carlyle raised what is believed to be the first US-focused infrastructure fund.

More sponsors are expected to follow as institutional investor demand, particularly from pension funds, continues to rise for assets generating long-term, stable returns to match liabilities.

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