Preparing Infrastructure Investment Cases

Preparing Infrastructure Investment Cases

When To Use

• Building an Investment Committee (IC) memo for a greenfield or brownfield infrastructure asset
• Preparing materials for a PPP/concession bid or direct equity investment
• Structuring a recommendation for infrastructure debt (project bonds, bank facilities, mezzanine)
• Documenting an infrastructure opportunity in a pipeline or deal-screening context
• Updating an existing IC case with revised assumptions or post-due-diligence findings

Inputs To Gather

• Asset profile: sector (transport, energy, digital, social, water/waste), geography, development stage (greenfield/brownfield/operating), asset description, and concession or license term
• Transaction structure: equity vs. debt sizing, capital stack (senior debt, mezz, equity, subordinated facilities), proposed entry valuation or bid price, and co-investor or consortium details
• Cash flow model or assumptions: revenue drivers (availability-based vs. demand-based), contracted vs. merchant exposure, O&M cost structure, capex schedule, escalation/indexation mechanisms, and base/downside/upside scenarios
• Regulatory and permitting landscape: sector regulator, tariff-setting methodology, required permits/licenses, political risk considerations, and change-in-law protections [VERIFY jurisdiction-specific regulatory framework]
• Risk register: construction risk (EPC terms, liquidated damages, completion guarantees), demand/volume risk, counterparty credit, FX/interest rate exposure, environmental/social, and force majeure
• Return targets: fund-level return hurdle (gross/net IRR, equity multiple, cash yield), benchmark comparables, and GP/LP alignment provisions
• ESG and impact metrics: climate alignment, emissions profile, community impact, alignment with taxonomies (EU Taxonomy, GRESB, SDGs) [VERIFY applicable ESG disclosure standards]

Workflow

1. Frame the opportunity — Summarize the asset, sector thesis, and strategic rationale. State whether the investment is availability-based (contracted, government-backed) or demand-based (merchant/volume risk). Identify the fund strategy fit and ticket size relative to fund capacity.

2. Map the regulatory environment — Outline the concession/license framework, tariff or rate-setting regime, and key regulatory bodies. Flag any pending regulatory reviews, elections, or policy changes that could affect returns. Note change-in-law, stabilization, or step-in rights. [VERIFY current regulatory status and upcoming review periods]

3. Structure the capital stack — Present the proposed financing structure: senior debt (tenor, pricing, covenants, DSCR locks), any mezzanine or subordinated layers, and equity contribution. Include gearing ratios and compare to sector benchmarks. If a PPP, detail the government contribution or viability gap funding.

4. Build the base case financial summary — Present key outputs from the cash flow model: project IRR, equity IRR, cash-on-cash yield, DSCR profile (minimum, average, lock-up), payback period, and terminal/residual value assumptions. Show sensitivity tables for the 3–5 most impactful variables (e.g., traffic volume ±10%, construction cost overrun, interest rate shifts, inflation divergence).

5. Assess and tier risks — Organize risks into categories: construction, demand/revenue, counterparty, regulatory/political, FX/macro, environmental, and force majeure. For each material risk, state the mitigation mechanism (EPC wrap, insurance, hedging, reserve accounts, government guarantee, step-in rights). Assign a residual risk rating (high/medium/low) after mitigation.

6. Benchmark and compare — Provide comparable transaction data: recent infrastructure deals in the same sector/geography, entry multiples (EV/EBITDA, EV/MW, price per lane-km), and achieved returns. Note where the proposed deal sits relative to peers and fund return thresholds.

7. Summarize ESG and impact — Quantify where possible: estimated CO₂ avoided, jobs created during construction/operations, community benefit commitments. Map to relevant frameworks (EU Taxonomy eligibility, GRESB score drivers, SDG alignment). [VERIFY fund-specific ESG reporting requirements]

8. Draft IC recommendation — State the clear recommendation (invest/pass/conditional), the proposed terms (entry price, equity commitment, key conditions precedent), and any outstanding due diligence items or conditions that must be satisfied before close.

Output

The final IC investment case should contain:

• Executive summary (1 page): asset, thesis, structure, return profile, recommendation
• Opportunity overview: sector context, asset description, transaction history
• Regulatory and political analysis: framework, risks, protections
• Financial analysis: capital structure, base case returns, sensitivity/scenario analysis with tables
• Risk matrix: categorized risks with mitigations and residual ratings
• Comparable transactions: benchmarking table with key metrics
• ESG and impact summary: quantified metrics, framework alignment
• Recommendation and conditions: clear invest/pass with conditions precedent and next steps

Quality Checks

• All return metrics (IRR, yield, multiples) are internally consistent and tie back to the cash flow model
• Sensitivity tables cover at least construction cost, revenue/demand, interest rates, and inflation
• Every material risk has an identified mitigation; residual risks without mitigation are flagged for IC discussion
• Regulatory analysis references specific statutes, regulators, and review timelines — not generic statements [VERIFY all cited regulations are current]
• Comparable transactions use recent data (within 24 months) from the same sector and geography where available
• Assumptions are explicitly labeled; no inferred data is presented as confirmed — mark uncertain inputs with [VERIFY]
• Capital structure ratios (gearing, DSCR, LLCR) are benchmarked against lender market standards for the sector
• ESG claims are supported by quantified data or third-party assessments, not aspirational language