AMP Capital raised $1.1 billion for its global Infrastructure Debt Fund II, surpassing its $1 billion target. PFR Senior Reporter Olivia Feld spoke to Andrew Jones, global head of infrastructure debt at AMP Capital headquarters in Sydney, about M&A driving lending activities and how the shop sources its deals.
PFR: Where do you see new opportunity now in the Americas and what do you think has changed in the market since the first fund was raised and invested?
Jones: We've been active in the Americas for many years now. It was back in maybe 2005 when we made our first investment in the U.S. It’s only in the last number of years that we've had a team based in the U.S. on the ground and that’s reflective of the fact that we have been seeing a growing number of opportunities for several years now. Most of those continue to be in the energy space in one form or another. But we're now seeing further opportunities in the other sectors we target. As I mentioned, we look at transportation assets and we've considered a number of investments in the U.S. in both the ports and airport sectors for example.
PFR: You have been more active in the U.S., why is the market more attractive now than it was 10 years ago, when you first started making investments?
Jones: We are seeing more opportunities in the Americas these days. To give you a sense, historically about 60% of our investments would have been in Europe, with the remainder spread between North America and Australia. That sort of ratio between Europe and the U.S. is now evening out and we're probably now seeing an equal amount of opportunities come out of the U.S. as there are coming out of Europe. Why is that the case? The main examples of where we are useful for sponsors is to help them with M&A activity. If people are to acquire an infrastructure asset then we can help them with their acquisition financing. Or, alternatively, they’re refinancing an existing business, that’s another area where we can assist them.
In terms of recent activity in the U.S., a lot of the opportunities that we've been considering have been M&A related, so acquisition financing opportunities. That's been reflective of an increased level of activity and that’s based in the recent quarters. We expect that to continue certainly well into 2015 and many of the transactions that we're now considering are early stage M&A-related activities that if they proceed, would settle through 2015. It's just a reflection of a higher level of activity in that market.
PFR: I'm curious about what you’re seeing in the M&A acquisition market. Are you seeing a lot of potential buyers in bilateral deals?
Jones: If I think in our current pipeline there's a pretty even spread between public and private bilateral deals. I'm not sure we have a big enough sample set to sort of read too much into that, whether there’s a trend away from public deals or not.
PFR: Do you rely on existing relationships or do you work with an advisor?
Jones: The sources of our opportunities are really two-fold. Our main source of opportunity is the relationships we have with the equity sponsors in the market. People who are looking to acquire a particular asset will generally contact us at an early stage and ask whether we can help them in those efforts. Just as important are our relationships with the investment banks who advise the sponsors. People that are, for example, running a sale process, on the sell side will reach out to us and let us know that that process is running and suggest that we talk to particular sponsors in relation to particular assets. There are two sources of transactions, the primary source is really the sponsor relationship.
PFR: Do you guys have certain markets that you like more than others, or are you pretty equal-opportunity in the U.S. and Canada?
Jones: Our deal flow is by its nature opportunistic. It's very difficult in the infrastructure space to pre-determine exactly what your portfolio would like to look like and then go out and build that because assets may not be coming to market for one reason or another in that sector for a period of years. If you sit around waiting for a U.S. port to come to market, you might have a long wait. We, as an infrastructure equity fund, need to be flexible and opportunistic on our approach to deal flow. We certainly have very firm views on what type of assets we look for and what characteristics they have. But where they will specifically come from, we can’t predict into the future.
PFR: In terms of those characteristics, could you elaborate on some of those?
Jones: We're basically looking for businesses, as most infrastructure investors are, with stable predictable cash flows and a history of stable operations through economic cycles. As you mentioned earlier, we're attracted to contracted cash flows. But we don't particularly like merchant risk. We have limited appetite for that on the transactions we undertake. Because our strategy relies on adding leverage onto those companies’ balance sheets, we need to be comfortable that the extra financial risk that we're adding to those businesses is able to be absorbed by the predictability of their earnings.
PFR: How would you characterize the lending landscape out there? There have been a few funds pop up in the last couple of years.
Jones: There have been a number of new entrants to the infrastructure debt space, more so in the European market than the U.S. market, frankly. But we have seen some new entrants in the U.S. as well. Many of those are working across a variety of different strategies. A large number of those—in particular those run by insurance companies—are more interested in the first lien or senior debt to these businesses. We have seen some activity from energy mezz funds in the U.S., who generally will be structured to look for higher risk and higher return opportunity than we would generally consider. Those are more like buyout, mezz-type vehicles. It's still relatively uncrowded in a particular subsector that we look at. Again, one of the key strengths of our business is the long-standing relationships that we do have with the sponsors that we work with. That puts up quite a nice barrier for entry for us against people looking at the transactions that we consider.
Please visit www.powerfinancerisk.com for the first installment in which Jones discusses investor response to fundraising and what AMP looks for in investments.
