High Yield / Non-investment Grade
The definition of infrastructure finance is not always clear. It is primarily a type of project finance. Governments are usually the ones that determine which industries can be considered as infrastructure. However, some characteristics are common:
- industries that are essential to the economy (transportation, telecommunications, electricity, etc.);
- industries of strategic importance.
A high-yield debt security pays a high return to compensate for the larger counterparty risk associated with the investment. Counterparty risk (risk of loss due to the default of a counterparty) can be measured and rated. The main rating agencies (Standard & Poor's, Fitch, Moody's) evaluate issuers' ability to repay their debts, i.e., to repay the right amounts on the right dates, and assign them a corresponding rating.
Higher quality bond issuers (AAA to BBB-) are considered investment-grade or good quality. Issuers with a rating of BB+ to below are seen as riskier, and they are typically referred to as non-investment grade, speculative grade or high yield.
From the investor’s point of view, high-yield bonds can be attractive because of the higher expected return compared with securities with low counterparty risk.