The evolution of infrastructure debt
Infrastructure debt has evolved beyond traditional senior lending, creating a broader opportunity set for both borrowers seeking flexible capital solutions and investors seeking resilient portfolio income.
Infrastructure debt is no longer defined solely by long-dated, investment-grade senior lending.
In a keynote interview with Infrastructure Investor, Damien Gardes, Co-Head of Infrastructure Debt at Schroders Capital, explains that, as the market has matured, it has expanded to include a broader range of financing solutions. This incorporates an expanding range of junior and subordinated debt, offering enhanced flexibility for borrowers and opportunities for investors.
This expansion has, in turn, been driven by structural changes across both financial markets and the infrastructure sector itself. Banks have reduced lending following post-financial crisis regulatory reforms, while the global energy and digital transitions have created growing demand for more tailored financing structures.
As a result, infrastructure debt has become an increasingly sophisticated market, capable of supporting a wider range of assets, business models and capital requirements, while continuing to benefit from the defensive characteristics that have long underpinned the asset class.
For investors, this evolution has also created a wider range of investment opportunities, with differentiated duration and risk-return profiles, and strong downside protection.
Key takeaways
- Infrastructure debt opportunity is expanding. As the market has evolved, junior and subordinated strategies have become an increasingly important part of the financing landscape, giving borrowers more options and expanding the opportunity set for institutional investors.
- Private capital is playing a bigger role. Banks have scaled back long-term lending, while investment needs across energy and digital infrastructure have continued to grow. As a result, borrowers are increasingly turning to private capital providers capable of structuring financing around the specific needs of individual projects.
- Sub-investment-grade infrastructure debt offers a differentiated risk-return profile. While these strategies seek higher returns than traditional senior infrastructure debt, they continue to benefit from many of the asset class's defensive characteristics, including essential assets, contracted or regulated revenues, and strong downside protection relative to broader private credit markets.
- Structural investment themes continue to drive demand for capital. The energy transition, digital infrastructure expansion and growing AI-related investment are generating significant financing requirements across renewable energy, storage, fibre networks and data centres, creating a deep pipeline of opportunities for infrastructure debt investors.
- Specialist expertise is becoming an increasingly important differentiator. As the market becomes more sophisticated, borrowers are seeking financing partners capable of delivering tailored solutions with certainty of execution, while investors continue to prioritise managers with deep underwriting expertise, disciplined capital deployment and long-term track records.
This article first appeared in the Debt special report published alongside the July 2026 edition of Infrastructure Investor.
FULL TRANSCRIPT
Q How and why has the market opportunity set for infrastructure debt evolved beyond senior exposure?
It’s certainly true that the infrastructure debt opportunity set has significantly broadened beyond a historical focus on investment grade, senior secured, long dated and low-risk exposures.
This evolution has taken place for a number of reasons. Firstly, I would point to the retrenchment of the banks due to post-financial crisis regulatory changes that forced them to reduce risk assets on their balance sheets. That created space for private capital to come in and provide an alternative and stable source of capital to borrowers.
Secondly, the definition of infrastructure has widened to incorporate a broader range of assets led by the trends of energy and digital transition, not limited to pure project finance. With that, the needs of borrowers have also changed, requiring bespoke instruments, tailored to specific business models.
As a result of these evolutions, the market has moved along the capital structure, with increasing allocations to junior and subordinated debt strategies, offering a different risk-return profile to investors.
So, while infrastructure debt initially appealed primarily to banks and insurance companies, to help diversify their corporate credit books and provide duration with a low level of risk and efficient solvency and capital treatment, it increasingly now also includes sophisticated sub-investment grade products offering higher potential returns.
This broadens the appeal of the asset class to investors such as pension funds and endowments, while offering more bespoke solutions for sponsors.
Q What changes have you seen in the sub-investment-grade market and why might this be a good thing from a borrower perspective?
The sub-investment-grade segment of the infrastructure debt market has expanded rapidly in recent years – and this has brought a number of benefits for borrowers. First of all, it provides access to capital in cases where some traditional lenders may be more constrained, for example in the mid-market, or in transactions involving more complex assets or situations. It also allows for more customised structures to better align with project-specific risk profiles, or growth strategies.
At its inception, the sub-investment-grade market mostly targeted the simplest assets, primarily with the intention of optimising the equity return rather than the capital structure in itself. It’s now evolved to incorporate a broad range of instruments suitable for a broad universe of transactions, allowing for a greater degree of sophistication and specification.
Sponsors are now drawing on this alternative source of capital, rather than injecting further equity into the capital structure. This is particularly important in an environment where the cost of capital has materially increased.
Q How would you describe competitive dynamics in the space and what are both borrowers and investors looking for in a sub-investment-grade infrastructure debt manager?
Sponsors are looking for asset managers that are able to create a bespoke solution, structured to meet their specific needs. It’s that degree of specificity, specialism and expertise, more than anything, that the sub-investment-grade infrastructure debt market needs to provide. I would add that sponsors are also looking for certainty of execution – reliability is paramount. It takes a lot of work to raise financing for an infrastructure asset.
You need to present a business model and produce detailed due diligence reports on multiple aspects of the company and the environment in which it operates. That’s costly and time consuming, so you need to be sure that you’re going to be provided with a reliable offer at the end of it all. Sponsors, therefore, look to work with players that have a solid track record of getting deals done.
Meanwhile, investors are looking for asset managers that are disciplined when it comes to sticking to strict underwriting criteria, as well as that are able to effectively deploy capital.
Furthermore, they too are looking for a long track record of experience. This is a specialist area with high barriers to entry; you cannot invent yourself as an infrastructure debt asset manager in a day. As such, both borrowers and investors are looking for a long-term presence in the market, a strong track record and a stable team. The combination of these attributes is essential for both underwriting discipline and the reliable execution of transactions.
Q What advantages does the asset class offer investors, particularly today when many are seeking alternative sources of premium yield?
The current market environment is clearly characterised by elevated base rates, but historically low credit spread on the listed credit markets. Infrastructure debt allows investors to keep an attractive credit risk premium exposure, while remaining relatively immune to the recent turmoil that’s been experienced, for example related to tariffs, or the recent energy price shock.
In short, infrastructure debt has demonstrated greater stability and provided more attractive margins than the broader fixed income market, while still benefitting from the higher base rate.
In addition, infrastructure debt provides investors with structural resilience. Infrastructure assets provide essential services to society. They’re generally supported by long-term contracted or regulated revenues with respect to the underlying business model, while loans are typically underpinned by robust collateral agreements and security packages.
All of these features support stable cash flows and low correlation to the economic cycle. This combination of stability, an attractive premium compared to listed fixed income markets, together with structural resilience and strong downside protection, makes the infrastructure debt asset class highly attractive in the current market environment.
Q Which sectors and structures are particularly compelling in the context of junior or high-yielding infrastructure debt right now?
The most compelling opportunities, in terms of subordinated structures, right now are linked to the major structural trends of the energy and digital transitions.
There are an abundance of opportunities stemming from the need to significantly increase renewable energy generation capacity, not least to enhance domestic energy security in many regions, as well as to expand the storage solutions necessary to adapt networks to the inherent intermittency associated with those renewable assets. Energy efficiency is also a hot topic.
These areas, taken together, will require huge volumes of capital to deliver ambitious roll-out plans. In addition to equity and senior debt, that means there’s significant demand for intermediary layers of capital to support efficient capital structures, in the form of junior and subordinated infrastructure debt.
Equally, there are massive investment needs in the digital infrastructure space. The acceleration of AI, in particular, is driving the continued expansion of the data centre segment, as well as the ongoing rollout of fibre and mobile networks to increase access to the opportunities AI promises to bring.
The energy transition and digital transition mega themes are fuelling unprecedented deal flow for infrastructure debt providers in general, and for the sub-investment-grade market in particular.
Sponsors are seeking efficient solutions in the construction and expansion phase, where financing needs are both vast and complex. Structures that incorporate both project finance and corporate elements are required to serve this combination of asset-backed and expansion activity.
Q Where do these allocations typically sit for investors with respect to both equity and the broader private credit market?
Infrastructure debt sits at the intersection of fixed income, private credit and real assets. Where precisely it fits within an investor’s allocation model will depend on the type of infrastructure debt involved. Senior, investment-grade infrastructure debt is generally viewed by institutional investors as a substitute for listed fixed income corporate credit, with the added advantage of an illiquidity premium, greater stability and enhanced resilience with respect to capital preservation.
This allows for both longer investment horizons and attractive capital charges.
The sub-investment-grade infrastructure debt market, by contrast, is more likely to be positioned as a high yielding, private credit allocation, although offering stronger downside protection when compared to the corporate high yield listed market on the one hand, or the broader private debt market on the other.
Some may also allocate from their broader infrastructure or real assets bucket, given the often quasi-equity like returns for credit risk that can be achieved.
In the context of private credit specifically, infrastructure debt is significantly less volatile than the market in general, offering greater resiliency and capital protection in the event of a deterioration scenario. As a result of these core, fundamental attributes, we’re not hearing of investors having any specific concerns around infrastructure debt in the same way that they are about private debt more broadly. For example, investors are clearly expressing concerns around exposure to the software sector. However, the fact that infrastructure provides essential services, supported by contracted revenues, means that the asset class remains extremely resilient.
Subscribe to our Insights
Visit our preference center, where you can choose which Schroders Insights you would like to receive.
Topics