Barclays launches UK £500m senior debt fund

The fund, billed as the UK’s first ever bank-led UK infrastructure debt fund, has already been seeded with £200m of assets. The fund’s ‘sweet spot’ will be loans of up to £80m, enticing sponsors to bypass the traditional bank club structure.

UK bank Barclays has stepped into the debt fund arena with the launch of a new £500 million (€569 million; $818 million) senior debt fund – the Barclays Senior Debt Infrastructure Fund I – which the bank is calling the “first ever bank-led UK infrastructure debt fund,” Barclays has announced in a statement.

The fund, which is only open to institutional investors, is aiming to provide senior debt to social and economic infrastructure, renewable energy, electricity transmission and waste-to-energy projects. It has already been seeded with £200 million of assets from Barclays Corporate, the corporate lending arm of the bank, consisting of 10 deals, primarily loans to private finance initiative and public-private partnership projects. The fund is exclusively UK-focused, Barclays said.

David Cooper, head of infrastructure debt at Barclays Corporate, told Infrastructure Investor that he wants the fund to be competitive with banks:

“We can be competitive compared to a traditional bank solution,” he said. “We are able to hold debt for longer periods of time and we can also offer sponsors a Barclays-only solution, allowing them to bypass the traditional bank club structure,” Cooper added.

A Barclays-only solution could allow sponsors to cut borrowing costs, but would probably only work for a certain deal size. Cooper admits that the fund’s “sweet spot is your typical social infrastructure or renewable deal to which we will be able to lend up to £80 million,” he explained, adding: “But of course, we will be happy to lend less than that and we can also lend alongside other banks.”

The senior debt fund will have exclusive access to projects funded by Barclays Corporate and Barclays Corporate will retain a 20 percent stake in all the assets owned by the fund. According to Cooper, this should help provide confidence to the fund’s institutional investors:

“We [Barclays Corporate] have committed to retain 20 percent in each asset which makes this quite different from, say, a securitisation of infrastructure debt,” Cooper argued. “We have also been in this industry for a very long time,” he pointed out.

According to a statement from the bank, Barclays Corporate’s infrastructure debt team has 12 years of experience investing in infrastructure, managing a portfolio of over £3 billion. The 30-strong team has provided debt for more than 200 projects, with the portfolio’s default rate standing at less than 1 percent, Barclays stated.

Cooper says he is happy with the fund’s £500 million target size – the vehicle has no hard cap – and is “keen to deliver returns to investors quickly”. He said the team aims to have fundraising wrapped up in the third quarter of 2011 and fully invested in three years. But the fund’s “modest” size does not betray lack of ambition: “If demand is as expected we hope this [senior debt fund] will be the first of many,” Cooper said.

The UK government’s National Infrastructure Plan outlines £200 billion of investments in the country’s infrastructure over the next five years.