Macquarie, UK pension pair up for £1.1bn first loss debt deal

Macquarie Infrastructure Debt Investment Solutions has agreed to invest £1.1 billion ($1.4 billion; €1.3 billion) in a synthetic securitisation deal on a UK renewables debt portfolio held by NatWest Bank.

The deal was made in partnership with BAE Systems Pension Funds Investment Management, asset manager of the £24.5 billion BAE Systems Pension Schemes. It covers a mix of operational and non-operational onshore and offshore wind, solar, energy-from-waste and biomass power projects, as well as smart meters. The total generation capacity of the portfolio is 5GW, MIDIS’s managing director Tom van Rijsewijk, told Infrastructure Investor.

The synthetic securitisation deal, whereby MIDIS provides a first loss tranche, is a first of its kind for MIDIS, according to van Rijsewijk.

“Often in those transactions the returns are in the mid- to high-single digits or even low double digits. It’s quite a different risk return profile to what MIDIS has done historically,” he explained.

Van Rijsewijk added that the group sees further scope for such deals in both the UK and beyond and so MIDIS “definitely sees this as the first of more to come”.

He declined to comment specifically on the return or coupon involved in the transaction, as well as the number of assets held in the portfolio. However, Macquarie’s Green Investment Group has calculated that the portfolio’s annual electricity generation is expected to power the equivalent of 4.6 million households, resulting in reduction of carbon dioxide emissions equivalent to taking 2.3 million cars off the road, Macquarie said in a statement.

Van Rijsewijk also explained that the deal did not fit into Macquarie’s flagship infrastructure debt funds because of its risk-return characteristics, with the separate account basis on which it was financed also catering to the expertise of the BAE pension.

“When you do these transactions, you first need to get comfortable with the underlying portfolio,” he said. “These are originated by NatWest and managed by NatWest, so you need to be comfortable with that too and so it requires a lot of expertise.”

According to the statement, the transaction will enable NatWest to recycle capital and use it for further lending to the UK’s renewables sector.

Macquarie’s debt unit has invested over £2 billion in renewable energy assets since 2012, with the portfolio totalling about 12.8GW in generating capacity.