Singapore-based Bayfront Infrastructure Management has completed a US$401 million securitization of infrastructure loans, including a sustainability tranche targeted at the growing pool of specialized green institutional portfolios.

Bayfront is a platform designed for institutional investors to access Asia-Pacific infrastructure debt. It seeks to address the infrastructure financing gap in the region by facilitating the mobilization of private institutional capital into the infrastructure financing market.

The Bayfront Infrastructure Capital II Collateralized Loan Obligation (CLO) transaction gives investors exposure to a portfolio of 27 project and infrastructure loans across 13 countries in Asia-Pacific, the Middle East and South America. It includes eight industry sub-sectors, including conventional power and water (36.4%), renewable energy (25.5%), and integrated LNG (13%).

About US$184.8 million or 46% in the latest deal are eligible sustainable green or social assets, according to its sustainable finance framework.

Bayfront has developed and maintained an environmental and social framework, which will apply to the entire transaction, and includes criteria to evaluate the environmental and social  (E&S) performance of each underlying asset and its key counterparties in the portfolio (including E&S-related reputational risks) as part of the initial red flags screening.

Exclusion list

Loans are screened against Bayfront’s E&S exclusion list (which is consistent with the bank’s environmental and social exclusion list (ESEL)) and categorized. They are then assigned an E&S risk rating, which determines the extent of monitoring and oversight required post acquisition. The sustainable finance framework, which would apply to the sustainability tranche of this operation, has been reviewed and a second-party opinion (SPO) has been provided for alignment with key International Capital Market Association (ICMA) guidelines including Green Bond Principles (GBP 2018), Social Bond Principles (2020) and Sustainable Bond Guidelines (2018).

In July 2018 Clifford Capital closed an initial "proof of concept" securitization transaction backed by project loans.

For this latest deal, five classes of investment-grade notes (Class A1, Class A1-SU, Class B, Class C and Class D) with an aggregate principal amount of US$361.1 million were offered to institutional investors, and will be listed on the Singapore Exchange. The Class A1-SU notes are a US$120 million senior sustainability tranche.

The Asian Infrastructure Investment Bank (AIIB) is buying US$60 million of the deal. It says its anchor investment will set an important benchmark for future infrastructure ABS, which are a critical part of the market-building process for new asset class creation.

The AIIB has a 30% stake in Bayfront, which was set up in late 2019 by the AIIB and Clifford Capital Holdings, which owns the other 70%. Shareholders in Clifford Capital Holdings are Temasek, Prudential, the Asian Development Bank (ADB), Sumitomo Mitsui Banking Corporation (SMBC), Standard Chartered, DBS and Manulife. The ADB acquired its stake last September.

Bayfront chief executive officer Premod Thomas says the platform aims to grow its network of 22 partner banks and gain greater access to infrastructure loans, especially in relation to sustainable assets.

"Reaching a wider network of institutional investors through our IABS issuances and other potential distribution channels is a key part of our strategy to develop a new asset class to help address the large infrastructure financing gap in Asia-Pacific”, he says.

Gathering momentum

The 22 partner banks are ABN Amro, ANZ, BNP Paribas, Citi, DBS, DNB, HSBC, ING, JP Morgan, KfW IPEX Bank, Maybank, Mizuho, Mitsubishi UFJ Financial Group (MUFG), NAB, Natixis, NordLB, OCBC bank, Santander, SMBC, Societe Generale, Standard Chartered and UOB.

There is growing optimism that the global project loan CLO market may finally be gathering momentum, after many years of occasional deals.

In March MUFG's securitized products division acted as a structuring lead in Starwood Property Trust's first project finance CLO, under the name STWD 2021-SIF1.

The deal was backed by a US$500 million pool of project finance and corporate infrastructure loans. New York Stock Exchange-listed Starwood Property Trust is a diversified finance company with a core focus on the real estate and infrastructure sectors. It is an affiliate of global private investment firm Starwood Capital Group.

In 2018 Starwood acquired GE Capital's Energy Financial Services' project finance debt business for US$2.56 billion. Most of the assets for the CLO come from that deal, though Starwood has since provided another US$800 million of debt to renewable projects.