Construction Cost Inflation Risks, Opportunities and Credit Implications
Inflationary impacts on labor, building materials and machinery, high energy prices and rising interest rates are pushing construction costs higher than forecast. This brings both risks and opportunities to construction companies and building materials providers.
Analysts will comment on the credit implications of inflation on all aspects of construction from the public or private sector owner, to the construction company, to the materials and machinery suppliers. Higher input prices raise costs for public and private developers and owners, but also present an opportunity for higher margins for suppliers and constructors. New projects have materially higher pricing and longer schedules compared to just a couple of years ago in order to account for the high risk procurement environment. This reduces the impact of new government funding that will increase demand in some sectors across the country, balancing a potential slowdown in new private investment.
- Labor and materials cost escalation may continue longer than headline inflation
- Project cost estimating risks increase construction company project selectivity and margins
- Risks are not uniform across regions or by product at all times, requiring active management
- New projects include more cost risk sharing versus fixed price risk transfer as in the past
- Materials and machinery suppliers balance increased pricing power with customer relationships
- Government’s focus on infrastructure investment will continue to drive demand, but new funding will be less impactful owing to higher costs and longer development timelines
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SpeakersKurt Krummenacker Associate Managing Director, Global Project and Infrastructure Finance Moody's Investors Service
John Medina Senior Vice President, Global Project and Infrastructure Finance Moody's Ratings
Emile El Nems Vice President - Senior Credit Officer, Corporate Finance Moody's Investors Service
Michael Corelli Senior Vice President, Corporate Finance Group Moody's Investors Service
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Kurt Krummenacker is an Associate Managing Director in the Americas Project Finance and Infrastructureteam, which covers a portfolio of transportation, public power, and project finance inNorth and Latin America. Prior to joining Moody’s in March 2006, Kurt worked inseveral departments of the Port Authority of New York and New Jersey. Kurt is aretired U.S. Army Captain who served as a Blackhawk Helicopter pilot andcommanding officer of several aviation, logistics, and administrative units primarily inthe 101st Airborne Division. Kurt holds a BS in Economics from the United StatesMilitary Academy at West Point, a Master of Aeronautical Science from Embry-RiddleUniversity, and an MBA in Finance from the Columbia University Business School.
John is a Senior Vice President in Moody’s Global Project and Infrastructure Finance Team covering a diverse portfolio of project financings, public private partnerships (PPPs), and municipal infrastructure issuers in the transportation, energy and social infrastructure sectors. John chairs Moody’s Global PPP Task Force and is the sector lead for US toll roads, PPPs and generic project financings. John authors research across multiple sectors and annually leads several new rating assignments for new PPPs and project financings in the US and Canada. John was selected as one of the Bond Buyer’s 2017 Rising Stars. Before joining the Infrastructure and Project Finance Team in 2010, John spent two and a half years as a lead analyst for local governments and enterprises in the Eastern Regional Local Government Ratings Team where he was the lead for municipal issuers in Pennsylvania and New York while also covering New Jersey, Virginia, and Florida. Prior to joining Moody’s, John worked as a risk management analyst, a property and casualty insurance account manager, and a health care claims auditor. John is a founding member and was the first co-chair of Moody’s NY Multicultural Employee Resource Group and is a founding steering committee member of Moody’s NY LGBTA Employee Resource Group. John earned his BA degree in Health Care Economics and Policy from Stanford University and his MPA in Health Care Public Finance from New York University’s Robert F. Wagner Graduate School of Public Service.
Emile El Nems is a Vice President - Senior Credit Officer on the Homebuilding, Building Materials and Packaging Team covering a portfolio of investment grade and high yield issuers in a number of verticals, including building materials, building products, manufacturing and packaging goods. Prior to joining Moody’s in 2019 as a VP-Lead Analyst, Emile was a portfolio manager at a top US hedge fund for five years and a managing director responsible for a Technology, Telecommunications & Media portfolio at a large European hedge fund for seven years. Before his asset management experience, Emile was a principal in the Investment Banking Group at Thomas Weisel Partners and a team leader in the Investment Banking Group at Bank of America Securities covering global wireline and wireless telecommunications, cable, and media companies. Emile received his MBA in finance from Columbia University and BS in Chemical Engineering from Stevens.
Michael Corelli is a Senior Vice President in the basic industries sector of Moody’s Corporate Finance Group. His portfolio includes steel distributors, specialty steel producers and engineering & construction companies.
Prior to joining Moody’s, Michael was a partner and a fixed income and equity research analyst for 16 years at an independent research firm. He was also a registered representative with Prospera Financial Services and held Series 7, 63, 86 and 87 licenses.
Michael is a CFA charter holder and a member of the New York Society of Security Analysts. He holds a BA from Johns Hopkins University and an MBA in finance from Fordham University.