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The fear factor

19 November 2008

Lenders and borrowers across all financial markets are still assessing the full impact of the credit crisis on their deals. Will the damage to deals, both economic and structural, and past and future, force a new way of lending? By Catherine McGuirk.

Infrastructure assets have enjoyed increasingly positive press on either side of the credit crunch because of their presumed immunity to the economic cycle and the hope for a wave of government spending in coming years. However, the sector shares in many of the crunch's effects, in stresses such as an increased cost of debt, sponsor and lender illiquidity, deleveraging, and a more conservative approach to deal-making. After the first round of the crisis, in the last quarter of 2007, the sector looked vulnerable to a number of concerns; notably widening margins, the possible weakness in the construction sector, and a reduced availability of long-term debt. The 2008 crisis has brought a larger number of more specific risks and weaknesses to the fore.

Maura Goldstein, a partner in Baker Botts' global projects group, says that "The immediate reluctance on the part of debt providers to do deals is driven by fear...

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