This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

McGraw Hill Financial President And CEO Douglas L. Peterson To Propose Ways To Close Infrastructure Financing Gap

Stocks in this article: MHFI

WASHINGTON, March 19, 2014 /PRNewswire/ -- McGraw Hill Financial (NYSE: MHFI) President and Chief Executive Officer Douglas L. Peterson today will call on policymakers and market participants around the globe to create the conditions necessary for institutional investors to fill the $500 billion annual gulf between existing public investments and the growing need to build, repair and replace roads, bridges and other critical infrastructure.

In an address to 300 business and government leaders at the U.S. Chamber of Commerce's 8th Annual Capital Markets Summit in Washington, D.C., Mr. Peterson will draw attention to the gap between the approximately $57 trillion needed globally through 2030 for infrastructure projects and the limits of traditional mainstay funders, including governments, which are constrained from increased spending, and banks, which are repairing their balance sheets.

The $500 billion annual shortfall cited by Mr. Peterson is based on research released in January by Standard & Poor's Ratings Services, a part of McGraw Hill Financial. Mr. Peterson's estimate is predicated on continued government infrastructure investment at the current pace of approximately 3% of GDP; a reduction in that level of spending could cause the annual funding gap to balloon to $1.5 trillion.

In his speech, Mr. Peterson explains that institutional investors – insurance companies, pension funds, and other nonbank lenders – are best positioned to fill this financing gap, as they are ideally situated to take advantage of the higher yields, asset-liability matching, diversification, and the low default and high recovery rates offered by infrastructure investments. He predicts that institutional investors can bridge the shortfall if they increase their allocations to infrastructure from 2% to 4%.

"Fortified by additional understanding, transparency, predictability, and certainty, we believe nonbank institutional investors can bridge the coming $500 billion annual infrastructure funding gap," Mr. Peterson says in remarks prepared for delivery.  "In doing so, they will ensure that our growing world has the means to build the bridges, tunnels, ports, schools, hospitals, energy sources, and other physical assets it needs, assets that will continue to amaze and inspire, and that will pave the road to achieving our economic potential at a time of such extraordinary promise."

Highlighting the need for alternative sources of financing in the United States, the U.S. Census Bureau has reported that government spending on infrastructure as a percentage of GDP is currently at a 20-year low, with calls for increased project funding going unanswered.

In order for the institutional investor approach to succeed, policymakers and investors must work together in three key areas, according to Mr. Peterson, who recently was named a co-chair of the World Economic Forum's Strategic Infrastructure Initiative. Those areas of focus are:

  • Standardizing Project Finance Structures And Enhancing The Transparency Of Project Debt

Given the magnitude and long-term illiquidity of infrastructure investments, transparency is especially important to the development of long-term project bond markets. Greater standardization of transaction structures enhances market visibility and predictability.

  • Streamlining Regulatory Regimes And Minimizing Political & Regulatory Risk

Inconsistent or inappropriate regulatory regimes can impede further development of institutional infrastructure financing. For example, Europe's Solvency II framework doesn't account for the favorable default and recovery characteristics of infrastructure project finance. This could discourage and even penalize insurers for holding long-dated, low- to-mid-investment-grade project debt. Further, enshrining independent, stable, and transparent regulatory frameworks in law reduces the risk of subsequent adverse policy changes impacting transactions.

  • Enhancing Credit Structures And Reducing Construction Risk

With weakened credit quality of some public sector counterparties, the infrastructure finance market has struggled to find support structures that meet both equity investors' rate of return requirements and investor demand for higher-rated bonds.  This problem highlights the growing importance of robust public-private partnerships – or "P3s," which include some level of private investment and a transfer of risk to the private party. 

Mr. Peterson's address at the Capital Markets Summit will be webcast. Visit https://www.uschamber.com/event/8th-annual-capital-markets-summit to view the speech.

About McGraw Hill FinancialMcGraw Hill Financial is a leading financial intelligence company providing the global capital and commodity markets with independent benchmarks, credit ratings, portfolio and enterprise risk solutions, and analytics. The Company's iconic brands include Standard & Poor's Ratings Services, S&P Capital IQ, S&P Dow Jones Indices, Platts, CRISIL, J.D. Power and McGraw Hill Construction. The Company has approximately 17,000 employees in 29 countries. Additional information is available at www.mhfi.com.

Investor Relations: http://investor.mhfi.com  

Get news direct from McGraw Hill Financial via RSS:   http://investor.mhfi.com/phoenix.zhtml?c=96562&p=rssSubscription&t=&id=&

 

1 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 17,804.80 +26.65 0.15%
S&P 500 2,070.65 +9.42 0.46%
NASDAQ 4,765.38 +16.9840 0.36%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs