Sustainable Investment Awards 2020

Impact initiative of the year: Jupiter 'impact' credit risk transfer

A $3.4 billion credit risk transfer featuring "ground-breaking" impact characteristics includes pricing incentives linked to positive impact and use-of-proceeds requirements.

 

The ‘Jupiter’ instrument is “perhaps the largest synthetic risk transfer around infrastructure assets”, Molly Whitehouse, director at Newmarket Capital said.

 

It comprises more than 250 loans in about 40 countries, from Société Générale’s core infrastructure lending portfolio. These loans are to organisations active in a variety of sectors, including Energy, Infrastructure, Shipping, Aircraft, Metals & Mining, Real Estate, and Telecom, Media & Technology.

 

Under the terms of the Jupiter credit risk transfer, which was agreed with the French bank in October, Société Générale has committed to dedicate 25% of the risk-weighted asset reduction achieved with the credit risk transfer to spur new ‘positive impact financing’ over the next three years.

 

The International Infrastructure Finance Company (IIFC) strategy, previously managed by Mariner Investment Group LLC, participated as a junior tranche investor in Jupiter. No other investors participated in the transaction.

 

As of 12 June, the IIFC management team and the IIFC strategy were transferred from Mariner to affiliates of Newmarket Investment Management, LP.

The managers said the terms of the Jupiter transaction remain unchanged.

 

By reallocating the released capital from Société Générale’s legacy loan book and dedicating it to enhance the capacity to finance new ‘positive impact’ projects, the organisations said they aim to advance the UN Sustainable Development Goals.

 

In the past, Société Générale’s Positive Impact division has made investments in areas including access to housing, biodiversity, resource efficiency, and access to clean water.

 

Additionally, if the bank is able to redeploy 50% of the risk weighted assets towards positive impact by the fourth anniversary of the transaction, in 2023, the IIFC team agreed to a reduction in the coupon. It declined to provide details of the amount of the potential reduction.

 

The IIFC strategy previously invested in a similar, $1 billion credit risk transfer, of 50 loans from the African Development Bank (AfDB), which was structured by Mizuho International in 2018. AfDB pledged to use the proceeds to finance renewable energy projects in Sub-Saharan Africa. However, the ‘Room2Run’ instrument is not believed to include a pricing incentive linked to positive impact goals.

 

Newmarket’s Whitehouse said: “Jupiter represents an important step forward in ‘impact synthetic risk transfers’, both in its incorporation of positive impact redeployment and its use of a pricing incentive. Jupiter is a prime example of the innovation that our team is focused on bringing to the market.

 

“My hope is that Jupiter will be an inspiration for others, and that [positive] impact will become more deeply ingrained across markets.”