Mid-Cap Tech Companies Take Lessons on Accessing Infrastructure Capital

During a panel on financing in the technology infrastructure space, panelists were asked about what types of structures were being used, how deal structures differ in the US and Europe, and, concerning greenfield investments, what factors lenders should look at before deciding to participate in a digital infrastructure project.

Concerning the challenge of high growth and mid-cap TMT companies increasing their access to capital, Knowlton expressed that there are clear tradeoffs between the liquidity of the rated, covenant-lite Term Loan B market, and the pricing and undrawn capacity of the structured finance lending market.  

He noted that when capex is a fraction of EBITDA, Term Loan B is probably the best option. However, if capex is a multiple of EBITDA, structured finance lending may be a better choice. He also made the point that outside of the U.S. there is growing investor demand for unrated, broadband infrastructure credit facilities with project-style lender protection and that growth of infrastructure credit funds should stimulate similar demand in the U.S. market.

The growth of infrastructure funds and their impact on the market was also discussed. Knowlton contended that, as an investor class, infrastructure funds have longer holding periods than traditional private equity funds for TMT companies. Therefore, TMT companies are more likely to pursue organic growth strategies with an infrastructure investor rather than look primarily to M&A for growth. He also observed that infrastructure funds are accustomed to lenders that understand negative EBITDA-Capex for extended periods and are comfortable with the deeper levels of control in structured finance lending. He added that Infrastructure funds also have a greater desire for structures that accommodate a material construction/completion risk period. 

Asked how investors can mitigate construction risk, Knowlton offered that investors should take lessons from project finance structures.

Societe Generale is an experienced lender in this space, having a long track-record financing digital infrastructure in Europe and having used hybrid structures that blend knowledge of broadband networks with the build-out analysis and drawing provisions of infrastructure projects; techniques Societe Generale Americas is now bringing to the U.S.

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