Crédit Agricole has transferred the risk of US$3bn-worth of project finance and object finance loans to Mariner Investment Group through a green capital note.
The transaction consists of about 200 obligors across Crédit Agricole’s franchise in power, oil and gas, real estate, infrastructure, aviation, shipping and rail lending.
At the end of 2015, Deutsche Bank closed the largest trade finance securitisation to date at US$3.5bn. At the time, the bank explained that the main goal of the transaction was to achieve risk-weighted assets (RWA) reduction on its portfolio.
With Premium Green 2017-2, Crédit Agricole is taking the idea one step further, ensuring that such de-risking results in more sustainable lending. The green capital note model aims to blend best practices from capital management with the objectives of socially responsible investing.
For example, as part of the transaction, Crédit Agricole has committed to use US$2bn of the US$3bn of freed-up regulatory capital for new lending in green sectors, including renewable energy, energy efficiency loans for commercial real estate renovation, public transportation, and sustainable waste and water treatment facilities.
“By releasing the legacy capital from the existing loan book and dedicating the available capacity to these sectors, the parties aim to advance the United Nations Sustainable Development Goals,” the bank says in a release.
Mariner Investment Group purchased the notes through two of its managed funds, bringing its overall transaction volume to more than US$8.2bn in synthetic securitisation risk transfer.
According to the bank, this is the first ‘green capital’ transaction completed. It is hoped that it will pave the way for similar transactions by other financial institutions.
“We very much hope that the news of this transaction will be the first in a wave of issuances of green capital notes,” says Molly Whitehouse, one of Mariner’s leads on the deal structuring team. “Capital markets can contribute so much to the mitigation of climate change risk and the necessary renewal of public infrastructure. This transaction demonstrates that synthetic securitisation is not just an important tool for balance sheet management, but also can generate real social and environmental returns.”
Jean-Yves Hocher, CEO of Crédit Agricole, adds: “The fact that the transaction incorporates innovative features from the socially responsible world makes it even more valuable to us. 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 optimised portfolio and the commitment to reinvest capital into pro-environmental lending.”