Capital relief

Unlocking investment in sustainable energy

Overview

NatWest Group (NatWest) is a leading lender to the UK’s sustainable energy sector, having provided approximately £10 billion of financing to support the UK’s low carbon transition¹.

To enable the recycling of capital for further lending, Macquarie Infrastructure Debt Investment Solutions (MIDIS) – part of MIRA’s Private Credit offering – helped facilitate an innovative capital relief trade for NatWest.

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Sector	Private Credit
Sub-sector	Renewables
Invested	2020

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Location	United Kingdom

Achieving net-zero

Recognising the significant challenge posed by tackling climate change, the UK was the first major global economy to legislate a commitment to achieving net-zero greenhouse emissions by 2050². Achieving this ambitious target will require substantial investment in sustainable energy, with a large proportion of this investment expected to be funded through private market debt financing.

Banks have traditionally been the primary lenders to the sustainable energy sector, providing short-term financing for green energy and energy efficiency projects. However, increasing capital requirements for banks have placed limits on their ability to lend, with many required to syndicate existing loans before participating in new financings.

To address this challenge, MIDIS partnered with NatWest to deliver an innovative, long-term, capital management solution – enabling the recycling of capital for further investment in the sustainable energy sector without the need to reduce NatWest’s loan book.

Recycling capital

The capital relief trade structured by MIDIS saw it invest on behalf of a client in a synthetic securitisation of a £1.1 billion portfolio of project finance loans held by NatWest.

Comprised of loans to 24 projects across the UK, the portfolio includes onshore and offshore wind, solar PV, smart meters, energy from waste, and biomass power. Collectively, the projects have enough capacity to power the equivalent of 4.6 million UK households with clean energy – with the CO2e avoided from the portfolio equivalent to taking 2.3 million cars off the road³.

By transferring some of the credit risk from the loan portfolio to a MIDIS client with less restrictive capital requirements, MIDIS enabled NatWest to release a significant amount of capital for further lending to the local sustainable energy sector. At the same time, MIDIS secured exposure to a debt portfolio with an attractive risk/return profile.

The UK is targeting net-zero emissions by 2050

Reducing carbon emissions

“The nature of the transaction enables a significant release of the capital allocated to the portfolio, which we will then be able to recycle to further increase our lending to the sustainable energy sector, helping support the growth in renewable generation that will be essential for the UK to meet its targets on reducing carbon emissions and climate change goals.”

Bruce Riley, Head of Project Finance, Natwest

Delivering attractive investment opportunities

“We are committed to the renewable energy sector and are pleased to have delivered this innovative ‘alternative’ capital management solution to NatWest. It offers an attractive investment opportunity for our investors whilst at the same time supporting further investments into the decarbonisation of the UK energy market.”

Tom van Rijsewijk, Managing Director

Driving innovation

The successful transaction represented the first exclusively UK ESG synthetic securitisation from a local financial institution, with all underlying loans meeting the Loan Market Association’s Green Loan Principles¹.

The innovative nature of the transaction saw it recognised as Impact Deal of the Year⁴ and could offer a model for banks to play a greater role in the fight against climate change going forward.