Each investment in private infrastructure debt or equity relates to an individual firm–often firm – often a project-specific firm–hence firm – hence the individual firm is the relevant level of observation.
A first step consists in the identification of a unique investable infrastructure company, and whether it is considered an equity investment or a borrower. Firms have a name and a location (of their tangible assets), a registration number, and other fixed characteristics that make them uniquely identifiable. For each identified firm, two types of observable data points are of interest:
- cash Cash flows (and cash flow ratios). Next, the cash flow and event data need to be categorised according to economically meaningful attributes. These fall into two main categories:
- physical Physical attributes of the firm: what and where the firm is as an infrastructure investment; and
- businessBusiness-model attributes of the firm: sources of revenues and costs of the firm and whether or not the risk inherent in these exposures is insured against (transferred) via contracts with third parties.
- Finally, the investable character of each firm is represented by a set of financial instruments found on the firm’s balance sheet (on the liability side). These instruments also have their own attributes: type of payout structure, control rights , and terms applicable to the different claimants to the firm’s free cash flow.
As proposed above, all relevant observations have to must be reported at the firm level. For each firm, individual observations can be captured in a report, as illustrated by figure 2.
Reports simply reflect the fact that some information about an investable infrastructure company is reported at some point in time, by a given source, and includes information about data on events or cash flows, or the physical and business-model attributes of the firm, or indeed any of the relevant financial instruments and what their attributes are at that point in time.
At the time of the report, this information can either be realised or predicted. Hence, to ensure consistency between sources and time frames, each reported data point must be placed on a double time scale: 1/
- the time of reporting; and
- the reported time of occurrence (which can be in the past, present, or future relative to the time of reporting).
For example, the latest annual accounts report today which cash flows and events occurred last year; likewise, the financial-close cash flow model reports which cash flows and events are predicted to occur over the next 25 years, at that point in time. In other words, all firm and instrument attributes should be reported and recorded dynamically. For instance, a loan may change interest rate over time (and this may be known in advance), or a firm may see its take-or-pay off-take contract expire before the end of the investment’s life. If this contract-expiry date is also known in advance, a future contract expiration event can be reported, until the event occurs, at which point it becomes a realised observation.