Clifford Capital’s first securitisation of project finance loans revived Asian interest in collateralised loan obligations, created a new asset class for the region and enhanced Singapore’s claim as a centre for infrastructure financing.
Singapore-based Clifford Capital set out to find a way to bring more institutional investment into infrastructure in Asia-Pacific and the Middle East, and settled on a structure that would overcome many of the hurdles in attracting fund managers to individual projects.
The portfolio approach, with dozens of project finance loans as the underlying collateral pool, appealed to buyside investors looking to diversify, and freed up bank balance sheets for the next round of projects, creating a template for future deals that can help close Asia’s infrastructure funding gap.
Clifford Capital sourced 37 loans from five institutions, as well as its own book, covering 30 projects. Australia, Indonesia and Vietnam were the biggest exposures, accounting for a combined 47.7% of the pool, but the portfolio also included frontier markets such as Papua New Guinea and Mongolia.
Around three-quarters of the underlying projects were already operational, and many of the loans had support from export credit agencies or multilateral institutions, helping to boost the ratings of the securities to a high investment grade. Banks were required to hold on to part of the exposure to ensure their interests were aligned with investors in the CLOs.
A sensible premium over CLOs in the US market helped generate momentum in tricky conditions in July – perhaps the worst month of the year for the Asian credit market – and the lead managers lined up substantial anchor orders before launch. Bookbuilding ran for a week, with some fund managers needing to complete internal approval processes, given that this offering was the first of its kind.
The Reg S securities attracted strong demand from a variety of investors, with Asia booking 65% of the notes, Europe taking 23% and the Middle East 12%. A broad range of investors participated, including bank treasuries, insurers, asset managers, pension funds and endowment funds.
A US$320.6m Class A tranche, with an expected rating of Aaa (Moody’s), was priced at six-month Libor plus 145bp with a weighted average life of 3.7 years and an expected maturity of 7.4 years; a US$72.6m Class B tranche rated Aa3 was priced at 195bp over with a WAL of 8.6 years and expected maturity of 9.4 years; and a US$19.0m Class C rated Baa3 was priced at 315bp over with a WAL of 9.8 years and expected maturity of 10.4 years. A US$45.8m subordinated tranche was retained.
Initial guidance for the Class A tranche was Treasuries plus 140bp–150bp; 185bp–195bp for the Class B tranche; and 315bp area for the Class C tranche. Bayfront Infrastructure is the issuing vehicle and Clifford Capital is the collateral manager.
Citigroup and Standard Chartered were joint global coordinators. DBS, HSBC and SMBC Nikko were joint bookrunners, and MUFG was co-manager.