Crédit Agricole CIB this week completed a $3 billion transaction that transfers credit risk on the bank’s portfolio of European project finance loans.
The notes, which are linked to the performance of approximately 200 obligors in the power, oil and gas, real estate, infrastructure, aviation, shipping, and rail lending industries, were purchased by Mariner Investment Group, a New York money manager, through two of its investment funds.
European banks are increasingly turning to “synthetic” transactions such as this one to free up capital for more lending because regulatory hurdles are making it difficult to bundle existing loans in their portfolio into collateral for bonds. Data on synthetic securitization is scarce, given the private nature of the deals. Deutsche Bank recently published an estimate that issuance reached €94 billion in 2016.
However, Premium Green 2017-2 is also notable for more than just its size. It is also a “green” transaction. Crédit Agricole CIB has committed to redeploy the freed-up regulatory capital in $2 billion of new lending in several green sectors, including renewable energy, energy efficiency loans for commercial real estate renovation, public transportation, and sustainable waste and water treatment facilities.
Both Credit Agricole CIB and Mariner hope that the transaction will pave the way for similar transactions by other financial institutions that will further additional “green” lending.
“This transaction demonstrates that synthetic securitization is not just an important tool for balance sheet management, but also can generate real social and environmental returns," Molly Whitehouse, one of Mariner's leads on the deal structuring team, said in a press release published Monday.
"Capital markets can contribute so much to the mitigation of climate change risk and the necessary renewal of public infrastructure,” “she said.
Crédit Agricole CIB will regularly report on the composition of the new green loan portfolio, and will periodically communicate on certain of the projects that have been financed as a result of this risk-transfer operation.
"Notwithstanding the uncertainty around expected regulatory changes, Premium Green 2017-2 ensures that Crédit Agricole CIB will remain fully capable to develop and expand its banking and lending services for the real economy, financing critical social infrastructure, energy, and public transportation," Frédéric Méron, chief financial officer of Crédit Agricole CIB, said in the same press release.
"The fact that the transaction incorporates innovative features from the socially responsible world makes it even more valuable to us," said Jean-Yves Hocher, CEO of Crédit Agricole CIB. "We have placed a strong corporate emphasis on being a market leader in sustainable banking and socially responsible investment. Premium Green 2017-2 is on the cutting edge, with an optimized portfolio and the commitment to reinvest capital into pro-environmental lending."
The transaction brings Mariner's overall investments in synthetic securitization risk transfer to more than $8.2 billion, according to the press release.