Winner: Project Bocarte

Project Bocarte has won Impact Deal of the Year in this year’s SCI Capital Relief Trades Awards. Bocarte is a significant risk transfer transaction executed bilaterally between Banco Santander and Newmarket Capital. The deal’s ESG components and ramp-up mechanism provide clear and impressive impact features.

The transaction – which closed in Q4 last year - provides first loss credit protection on a €1.6bn portfolio of project finance loan facilities issued by Santander. In addition to incorporating a number of structural impact and sustainability features, the initial portfolio is comprised of nearly 50% renewable energy assets, spread primarily across Spain, the UK and the US.

Bocarte is Santander’s fourth project finance SRT and the second SRT to align with Santander’s ESG strategy, incorporating additive coupon step-down incentives upon meeting specified ESG targets. The transaction introduces an innovative “ramp-up” feature, enabling portfolio and notes to increase pro-rata utilising committed investor capital at the same initial coupon rate, with the ability to bilaterally agree further increases and extensions. Additionally, Bocarte is Santander’s first project finance securitisation to meet the synthetic STS regime and the second of its kind in Europe.

Looking at the deal’s structure, the funded credit protection is provided to the Santander portfolio via a direct CLN referencing first-loss and mezzanine tranches. The referenced portfolio assets are capitalised through the ‘slotting’ approach, with the retained notes utilising SEC-IRBA as well as STS treatment, resulting in a highly efficient capital saving.

Furthermore, the impact incentive is triggered upon meeting certain ESG targets linked to both Santander’s Sustainable Finance Classification System (SFCS) and the group’s wider renewable energy lending. Specifically, should Santander achieve a pre-set fixed growth rate in this type of lending for certain years of the transaction’s life, a coupon step-down mechanism will be triggered. In order for this mechanism to be quick-started, Bocarte’s growth hurdle targets have been set ambitiously, taking into account the industry growth.

The portfolio ramp-up’s mechanism is designed to increase portfolio and notes pro- rata over 24 months at a constant initial coupon rate. The transaction uses pro-rata amortisation, with a trigger mechanism in place for a switch to sequential amortisation aligned to the EBA’s final RTS on synthetic STS performance-related trigger.

Commenting on the transaction’s alignment to Santander’s SFCS, Elena Eyries, MD and Denis Aranburu, MD at Santander, note: “The transaction is tailored to Santander’s new SFCS. And since we have this coupon incentive, it allows the investor to foster new lending from the bank in the ESG sector. The incentives linked to the ESG objectives for the replenishment of the portfolio, the ramp-up mechanism and the STS feature are all prominent innovations. We feel that all the stars were aligned, both from an investor and issuer perspective.”

Similarly, Molly Whitehouse, MD at Newmarket Capital, praises Bocarte’s forward- looking impact features. She notes: “Santander’s SFCS system goes into so much detail across different ESG-oriented criteria. To be able to align our risk transfer transaction with this new classification system is something that we're very proud of. I think that the challenge in any transaction in which you're trying to have some kind of forward-looking impact criteria is to make sure that you are getting the definitions right, such that you can track targets and have very solid reporting. I feel we have achieved this with Bocarte and it was a pleasure to partner with Santander at the forefront of their thinking around green considerations and around impact.”

She concludes: “I believe Bocarte’s targets speak to Santander and Newmarket’s aligned ambition in accelerating renewable energy growth. Our hope is that Bocarte, like other Santander and Newmarket transactions, will serve as a path for others to follow and encourage financial institutions and investors alike to think creatively about how they can embed positive impact into their own strategies.”

Honourable mention: Room to Run Sovereign (African Development Bank) 
Room to Run Sovereign (R2RS) marks the African Development Bank’s return to the risk transfer market, following its landmark synthetic securitisation in 2018. R2RS references a US$2bn sovereign loan portfolio and features a US$400m first-loss tranche (bought by AXA XL, Axis Specialty and HDI Global Specialty) and a US$1.6bn second-loss tranche (bought by the UK’s Foreign Commonwealth and Development Office). The objective of the transaction is to reduce the capital consumption of the AfDB’s sovereign loan book, in order to free up capital to redeploy in African climate finance projects.

For the full list of winners and honourable mentions in this year’s SCI Capital Relief Trades Awards, click here.