INPP buys $32m mezzanine debt for military housing assets

The London-listed infrastructure fund followed its first US deal with a $32m investment in subordinated debt secured by military housing assets.

International Public Partnerships Limited (INPP) has invested $32 million into mezzanine debt instruments secured by military housing assets.

The London-listed infrastructure fund acquired the debt from the Federal Home Loan Mortgage Corporation (Freddie Mac). The interests are secured over seven operational public-private partnership (PPP; P3) military housing projects, the same assets INPP used last October to secure its first US deal, worth $48 million. The debt matures in 36 years.

“Our second transaction in the United States marks the measured diversification of our portfolio into the P3 sector,” INPP chairman Rupert Dorey said in a statement. “We look forward to building on this success by developing additional primary pipeline opportunities in the United States over the medium term.”

INPP funded the investment through a combination of its cash reserves and its £300 million ($386 million; €344 million) corporate debt facility, which still has £161.6 million of uncommitted credit available.

The projects represent a total of 19 operational military bases in the US with approximately 21,800 individual housing units.

INPP said the deal offered: a secure revenue stream via the US military’s Basic Allowance for Housing paid to service personnel, creating an indirectly government-sourced revenue payment; high barriers to entry, as the number of on-base housing units is limited; no residual value exposure; and a geographically diverse portfolio of housing units across the continental US including some of the largest and most critical US military installations.

Military housing is one of the first US sectors to allow public-private partnership projects. Private sector funding was introduced to military housing development when Congress passed the Military Housing Privatisation Initiative in 1996.

INPP is a global infrastructure fund, listed on the London Stock Exchange. As of 30 June 2016 the fund had a market capitalisation of over £1.5 billion. In July, INPP closed an oversubscribed £125 million fundraise on the London Stock Exchange. The fund was originally targeting £75 million.