NAB is confident it will secure at least A$150 million (US$113.1 million) of demand for the forthcoming deal and its volume is capped at A$200 million. But Dennis Craig, director in the product and channel development team at NAB in Sydney, emphasises that the trade is designed to release capital for reinvestment in the renewables sector by NAB’s energy team. Unlike the bank’s previous CBI-certified deals, the emphasis is not on funding.

NAB is placing a vertical slice of around half the volume of eight senior-secured loans in the renewable-energy space – seven to wind farms and one to a solar park – into the newly created SPV. Investors in the notes will receive principal and income from the trust’s loans on an amortising, pass-through basis.

Craig tells KangaNews that this co-ownership structure should be of interest to a specific type of investor. “The trust is designed to appeal to investors that would like to be involved in direct lending but perhaps don’t have the scale to do so in their own right by participating in loan syndication or institutional term-loan placements,” he explains. “Investors will effectively be renting NAB’s expertise in the renewable-energy sector, while providing the bank with incremental capital capacity to reinvest.”

There is no basis swap and therefore the pass-through is unadulterated above the underlying bank-bill reference rate. Craig says the margin the deal offers – which is expected to be approximately 160 basis points over bank bills – will fluctuate from one coupon-payment date to the next in accordance with actual payments from the underlying loans.

The same applies to maturity profile. While the underlying loans have weighted-average life of 3.2 years NAB expects most will be refinanced well ahead of maturity, with proceeds from refinancing also passed through to noteholders.

While investors’ recourse is limited to the loans backing the notes, Craig confirms that the deal is not tranched and is substantively different from a traditional structured-finance transaction.

Although the trust and its notes are both unrated, Craig says additional information is available to investors about the underlying loans once they have signed a nondisclosure agreement which will allow them to form a view on the credit quality of the underlying portfolio.

NAB will hold skin in the game of at least a quarter of the loan value alongside trust investors, and the trust documentation does not allow the bank to sell its interest in the loans unless the trust is also able to exit.

The assets being placed in trust are all Climate Bonds Standard eligible and also suitable for NAB’s green-bond programme. This means the volume of the trust deal is capped by the competing need to keep sufficient supply of assets on balance sheet to support the bond programme. But NAB’s goal is to reinvest in the renewables sector and thus to grow potential supply of both types of debt security.

Craig says the bank is already exploring other areas of its corporate and institutional balance sheet that could be suitable for tailored transactions like this. However, as he explains: “They have to be in respect of assets that the bank has appetite to distribute and where investor interest exists. NAB’s leading position in the renewable-energy sector and the readily apparent demand made us think these assets were ideal for this inaugural co-investment transaction.”