Banks such as Santander, HSBC, Lloyds and Rabobank along with M&G Investments clubbed together to provide the senior chunk, while private equity groups Partners, Avenue Capital and Alcentra contributed the junior tranches.
For M&G, it was the third loan from its second Companies Financing fund, which was launched last year with seed investments from the UK government and from parent Prudential. The first fund made its debut in 2009 with the remit to take advantage of banks’ lessened appetite for lending money to medium-sized enterprises (SMEs). Other deals have included a £10m loan to Begbies Traynor, an insolvency consultancy, in April and a £45m loan to Workspace, a property company providing office space, in June.
The UK government is not alone in its efforts to promote direct lending to SMEs to the institutional community. Last year, Ireland’s National Pensions Reserve Fund (NPRF) launched three new long-term funds valued at €850m for investment in the Irish SME sector while the European Union’s Competitiveness and Innovation Framework Programme, is facilitating around $30bn in loans to European SMEs. More recently, the European Commission announced an additional slew of reforms to ease capital restrictions to further encourage pension funds and insurance companies to invest in SMEs through asset-backed securities.
Infrastructure for insurers?
SMEs though are not the only focus. Infrastructure is also high on the agenda with the Commission aiming to raise roughly €1trn investment in transport, new technologies, innovation and energy among other areas in an effort to boost Europe’s economy.
On the domestic front, the UK made the news by re- launching its National Infrastructure Plan targeting £375bn of energy, transport, flood, waste and water schemes last year. To date, the country’s insurance companies have been at the forefront with six major firms – Prudential, Aviva, Legal & General, Standard Life, Friends Life and Scottish Widows – committing £25bn over the next five years.
The pledge followed the resolution of the European Union’s Solvency II directive, which will allow insurers to invest in a wider number of assets than just the traditional trio of equities, bonds and real estate. Infrastructure is particularly appealing because of the varied risk and expected return profiles on offer, as well as the diversification and relatively stable long-term, inflation- protected cashflows that provide a good match for liabilities, but as with other private assets, there are of course challenges.
“Everyone is keen to invest in infrastructure, but the traditional government pipeline of public-private partnerships (PPP) and private finance initiative (PFI) deals are not there,” says Laura Mason, director of direct investment at L&G Capital.
“Also because there is so much liquidity in the marketplace, the pricing is not attractive. However, we are doing deals on the fringes such as the Royal Liverpool University Hospital and sale and leaseback arrangements in social housing. The long leases and cashflows are a natural fit from a pure liability matching perspective.”
At the end of last year, the insurer invested £89m over a 32-year term, as part of a consortium to build the new Royal Liverpool University Hospital for £335m. More recently it hit the headlines with the largest direct investment made to date by an institutional investor in the affordable housing sector.
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