News Analysis
Landmark green SRT introduced
Mariner Investment Group and Crédit Agricole have collaborated to create the first green capital relief trade, the French lender's largest synthetic issuance to date. Dubbed Premium Green 2017-2, the innovative US$3bn risk transfer transaction combines capital management best practices with the objectives of socially responsible investing.
According to Pascale Olivie, head of structuring, research and asset allocation in Crédit Agricole's credit portfolio management group in Paris, the securitisation allows the lender to "release capital, which can in turn be used to finance green assets for the real economy." These green assets can include renewable energy projects, energy efficiency loans for commercial real estate renovation, and sustainable waste and water treatment facilities.
Molly Whitehouse, director at Mariner Investment Group, notes that the main innovative features of the transaction are 'additionality' and 'conditionality'. These are principles that have been pioneered by multilateral development banks to incorporate concepts like ESG and impact investing into their mission-driven lending (SCI 11 January).
Additionality refers to the principle whereby development banks do not undercut the private market and add funds that are not currently available. Conditionality, on the other hand, implies that the newly released capital can only be used for green investments.
For Premium Green 2017-2, around US$2bn will be used for new green lending, a first for the synthetic format. In this regard, Whitehouse notes that "the transaction's implicit leverage that is involved in putting up the junior exposure allows the release of more capital for green investments than would otherwise be possible."
The deal references a portfolio consisting of roughly 200 obligors and is distributed across a range of assets, including power and infrastructure, shipping, real estate, oil and gas. Power represents 33% of the portfolio, while infrastructure accounts for 21%. These credits are spread across over 35 countries, with the largest concentrations in the US (at 37%) and the UK (11%).
Neither the pricing nor the specific tranche thickness was disclosed. However, Mariner generally invests in tranches with an initial thickness of between 5% and 8%, and the deal is said to be at the tighter end of this range due to the high credit quality of the underlying assets.
The assets remain on the bank's balance sheet in line with the transaction's synthetic format. Olivie says this required "confidence on behalf of the investor that CACIB's risk monitoring and servicing of the assets was credible, which is why we held several due diligence meetings with Mariner".
Gauging the impact of the deal on the market for capital relief trades is difficult, since it is the first transaction of its kind. Yet both Olivie and Whitehouse believe that it could encourage more banks to divert resources towards environmental and social lending and facilitate impact investing.
"We are already seeing a lot of interest out there from both issuers and peers on the buy-side," states Whitehouse. "Moreover, with funds available from third parties such as Mariner to support these approaches, such green transactions can have a catalytic effect to lower the cost of capital that can be a spur for further issuance."
13/03/2017 14:37:48
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