In this paper we examined a disastrous series of private infrastructure equity and debt investments: 10 Spanish toll roads procured between 1998 and 2004. Despite these projects being procured with the discipline of non-recourse project financing and the presence of a blanket government guarantee, within a few years of operation, nine out of ten roads were bankrupt, their equity investors wiped out and their lenders booking losses of 90 cents on the dollar. What happened? Based on detailed financial data on each of the concession companies as well as in-depth interviews with individuals representing the public and private sector directly involved in the collapsed projects, this paper shows that governments can procure privately financed infrastructure projects in ways that not only magnify moral hazard, but can also create systematic risk for investors.
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