Most Innovative Securitization Deal of the Year - Newmarket Capital – CITAH 2019
The rise of impact investing and environmental, social and governance strategies (ESG) have proved capital markets can be a driving force for positive change. Newmarket Capital, established to acquire and grow the structured solutions and impact-focused IIFC funds previously housed at Mariner Investment Group, is focused on strategies including development and infrastructure finance, socially responsible investments, and impact securitization. In partnership with Citi, the Newmarket team’s CITAH 2019 transaction securitizing affordable housing loans stands out as a prime example of accessing capital markets to address an urgent social need, earning our Most Innovative Securitization Deal of the Year for 2019.
CITAH 2019, a portmanteau of Citi Affordable Housing, is a $946 million credit risk transfer securitization of 96 affordable housing loans, financing more than 11,500 Low Income Housing Tax Credit (LIHTC) program rental units. The LIHTC programme has provided housing for roughly 6.7 million families since inception in 1986, but even after 35 years of funding affordable housing, there persists a shortfall of around 7.4 million units nationally. It is a hole the Newmarket team and Citi are helping to fill with the CITAH transaction.
“We’ve been America’s largest affordable housing lender for the past 10 years, and we are constantly seeking new ways and innovative approaches to better serve this important market,” says Mark Sherman, who leads the structured lending and investing group at Citi Community Capital.
With a Newmarket IIFC fund as the junior investor, CITAH 2019 enabled Citi to achieve funding and capital relief to maximize future resources for financing affordable housing. The dual tranche deal was oversubscribed, generating tax free returns for municipal investors. It was “Most Innovative” due to its novel asset class, its structural features that took advantage of the tax-exempt markets to generate a lower cost of capital, and its emphasis on providing capital resources to address urgent social needs.
“We founded Newmarket to address fundamental shortfalls in infrastructure; impact has been in our DNA since day one,” says Newmarket director and founding partner, Molly Whitehouse.
Since CITAH was priced in late 2019, economic distress from the coronavirus has taken a large toll on working households in the US, amplifying the need for additional affordable housing.
Newmarket founder and CEO Andrew Hohns hopes the firm can continue to address this concern.
“The last three months attest to the need for affordable housing, and further reinforce the critical role that capital markets play in responding to the broader needs of society,” he says. “What is exciting about CITAH is that it lays a path to harvest more liquidity for affordable housing. You build on the strength of the first transaction. We are very interested to deploy additional capital into affordable housing and encourage banks to originate into this space.”
Newmarket and Citi have a strong track record in social finance. Citi Community Capital has funded $26.9 billion of affordable housing loans across 44 states since 2013. Newmarket, through its IIFC funds, has collaborated with banks including Société Générale and Crédit Agricole to redeploy capital to impact sectors, and with the African Development Bank, helping to free up capital to invest in critical infrastructure across the African continent.
“The CITAH transaction is at the intersection of impact and innovation. It is exciting to bring a new structure to the affordable housing market while delivering on impact objectives for Newmarket and our funds’ limited partners,” Whitehouse says.
Many firms demonstrated a commitment to the principle. However, Newmarket and Citi stood out, with their innovation and their commitment to social finance placing them firmly at the top of GlobalCapital’s list for the Most Innovative Securitization Deal of the Year for 2019.