Gravis helps NordLB free up capital

The GCP Infrastructure Fund is offering credit protection on a portfolio of 20 UK PFI loans worth £307m. The structured deal allows the bank to free up capital to grant new loans.

German bank NordLB has struck an innovative deal with London-based fund manager Gravis Capital Partners that will allow the bank to free up capital for new loans via a structured protection scheme.

The deal, known as Blue Rock, will see the GCP Infrastructure Fund offer loss protection of up to £13.5 million (€17.1 million; $21.4 million) on a £307 million “high-grade” portfolio of 20 UK Project Finance Initiative (PFI) loans hand-picked by Gravis.

“The investor takes the credit risks of the portfolio’s mezzanine tranche and in return receives a coupon yielding a higher rate of interest than the current market level,” NordLB, who will continue to manage the portfolio, explained in a statement.

The bank is paying the GCP Infrastructure Fund 875 basis points over Libor – the London Interbank Offered Rate – for the credit protection. Financial services firm StormHarbour acted as structuring and placement agent on Blue Rock.

“On the one hand we have created an innovative investment alternative for institutional investors which, on the other, allows us to reduce our risk-weighted assets at the same time, thus free up capital for the granting of new loans,” explained Dr. Hinrich Holm, NordLB managing board member. 

“With Blue Rock we are responding to the growing demand among institutional investors for asset-backed capital market products,” he added.

This is the second time Gravis has offered credit protection to a bank, having previously entered into a deal with Japanese bank Sumitomo Mitsui Banking Corporation to cover losses of up to £14 million on a £233 million infrastructure loan portfolio.

In related news, Gravis announced recently that it will again tap the market in the hopes of raising more than £80 million through a C-share issue. Gravis said it “has continued to build an extensive pipeline, which is substantially in excess of £80 million, and which the board believes is made up of a number of highly attractive investment opportunities”. 

The fund manager will seek shareholder approval for the issue in early October, with a view to a mid-October fundraising drive. As of July 31, Gravis manages a portfolio of 22 infrastructure debt investments worth £154 million.