There was no shortage of innovation across the securitization market in 2022. But even amid strong competition, Newmarket Capital and Banco Santander’s Project Bocarte was a standout transaction. A cutting-edge structure, a focus on sustainability and a commitment to financing the energy transition made the bilateral trade a worthy winner of GlobalCapital’s Most Innovative Deal of the Year.
Newmarket has built a world class platform that provides truly innovative solutions for sustainable investment. The firm’s partnership with Santander goes back several years. Their Project Boquerón transaction – a €1.6 billion credit risk transfer on a portfolio of renewable energy loans – was awarded GlobalCapital’s Private Securitization Deal of the Year award in 2021. Their latest winning collaboration, Project Bocarte, saw the two parties once again structure a credit risk transfer that pushed the boundaries of sustainable finance.
Bocarte provides first loss credit protection on a €1.6bn portfolio of Santander project finance loans - of which almost 50% is comprised o renewable energy assets across Spain, the UK, and the US. The structure was guided by Santander’s Sustainable Finance Classification System (SFCS), the firm’s new global framework for classifying green, social, and sustainability-linked products. For Newmarket, which has now catalysed over $3bn in positive impact lending through innovative and impactful structuring, SFCS represented a strategic opportunity to align its shared priorities.
This was a really exciting deal because Santander had just come out with their SFCS which introduced social and green standards
“This was a really exciting deal because Santander had just come out with their SFCS which introduced social and green standards,” says Molly Whitehouse, managing director and lead portfolio manager for Newmarket’s credit risk sharing investments. “It was great for us to be able to use that classification system directly in our transaction.”
Over the replenishment period, Bocarte offers Santander a coupon discount if it meets an ambitious threshold for proposing assets aligned with the new framework, such as renewable energy production. “That, in turn, aligns with our favourable view of the credit risk related to certain positive impact assets,” says Whitehouse, managing director and lead portfolio manager for Newmarket’s credit risk sharing investments.
A second key structural component focused on Santander’s overall lending - providing an incentive to increase Santander’s financing for renewable energy over time. “Santander has been among the largest renewable energy lenders globally in recent years,” says Whitehouse. “We are proud of our ongoing partnership with Santander and our shared commitment to accelerating investment in a greener economy through credit risk transfer.”
Bocarte’s structure provides Santander the opportunity to achieve a coupon step-down if it reaches an ambitious fixed growth rate in its green lending, measured in megawatts rather than currency. “We believe that setting an incentive around impact in terms of megawatts more directly promotes what we are actually seeking to achieve: an accelerated reduction in carbon emissions,” says Whitehouse. “Furthermore, Bocarte not only promotes the “greening” of the transaction itself, but also incentivizes Santander group-level lending that aligns with the bank’s SFCS framework.”
Bocarte also includes replenishment and a tap feature, providing flexibility to increase the size of the portfolio on a forward-flow basis. Bocarte is just the second project finance transaction in the market to comply with the EU’s new synthetic STS regime. The STS label not only allows for a greater capital efficiency at a lower cost of capital for the bank, but also provides a less concentrated portfolio for investors.
When it comes to impact-oriented securitization, scaling up volume can be a key challenge. Newmarket’s Project Bocarte is an important demonstration to the market that sizable structured finance transactions can play a key role in “greening” the economy.
“Our hope is that Newmarket’s investment history and the range of impact solutions we’ve created provide a path for others to follow, whether that’s in terms of the redeployment of capital or specific structure incentives,” says Whitehouse. “I would be delighted to see other firms incorporate these powerful features into their transactions.”