How the Pension Insurance Company is investing for the future

Inside the insurer’s three most recent green debt deals.

Sara Benwellposted on Friday, June 10, 2022

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The Pension Insurance Corporation has completed a £130 million debt investment with Raven Housing Trust, which will be used to finance the development of 630 homes by 2026.

58% of those homes will be for social or affordable rent and 30% will be for Shared Ownership accommodation.

PIC says it was chosen as sole lender following a full market tender due to its flexibility on maturity and deferral capabilities. This builds on the insurer’s efforts in this area - PIC has invested £3.3 billion in social housing across the UK since 2012.

The transaction covers a range of maturities spanning over 30 years. The deal is based on deferred drawdown, reducing the cost of carry for the borrower and the debt is secured on housing assets.

Crucially, PIC says the maturity profile is tailored to match PIC’s pension liabilities in years where it is difficult to source cash flows in the public bond markets.

Vladan Martinovic, Debt Origination Manager at PIC, said: “By continuing to invest in long-dated, secure cashflows, such as our Raven investment, we are securely backing future pension liabilities.

“It has been a pleasure to deal with the team at Raven. We are proud to be able to help them develop much-needed homes, whilst at the same time securing the pensions of our policyholders.”

“By continuing to invest in long-dated, secure cashflows we are securely backing future pension liabilities”

PIC has also recently announced investment of a further £50 million of debt in the London School of Economics and Political Science to fund sustainable projects.

This includes the development of the LSE’s first carbon neutral building, 35 Lincoln’s Inn Fields. The investment is a key part of the LSE’s sustainable finance framework.

35 Lincoln’s Inn Fields will include adaptable spaces for teaching, research and conferences, with sustainability, energy efficiency and carbon minimisation at the core of its design.

It will be home to the university’s high-computing facilities hub, housing the Data Science Institute and is aimed at MBA students and future leaders of the digital economy.

To date PIC has invested £2.5 billion in the UK’s education sector, which supports the development of educational facilities, student accommodation, and direct funding needs on balance sheet.

“The deal highlights PIC’s track record of completing repeat transactions with our valued investment counterparties.”

The deal involves a £50 million direct, long-dated private placement. It uses a deferred drawdown structure, with funds being drawn in 2027. The debt matures in 2072, which matches PIC’s long-term liabilities.

Thomas Foucoin, Senior Debt Origination Manager at PIC, said: “The deal highlights PIC’s track record of completing repeat transactions with our valued investment counterparties.

“We are now supporting the LSE for both its student accommodation requirements and for wider development of its education facilities and data science offering. This investment backs our future pension payments and enhances retirement security for our policyholders.”

A third deal completed this year saw PIC invest £83 million investment in partnership with the London Borough of Newham to fund the construction of 161 homes.

The investment will fund the regeneration of a brownfield, industrial site near London City Airport to permanently re-home local families, with up to 50% of the properties intended to be affordable housing, generating considerable social value.

“It’s vitally important [our investments] generate considerable social impact in the short term and value in the long term.”

The project is a key part of the London Borough of Newham’s housing strategy, through which they plan to acquire large scale development to provide much needed affordable homes.

The strategy will not only provide secure, good quality housing for residents currently in temporary accommodation, but also provide LBN with a rental income which helps address their overall funding shortfall, as well as a stock of well-maintained, environmentally friendly properties for decades to come.

The Regeneration Lease structure provides PIC with long-term, inflation-linked cashflows which will be used to pay the pensions of its policyholders over coming decades.

PIC expects to invest £30 billion in productive finance projects by 2030, but the insurer said this figure could rise to £50 billion with appropriate, timely reform of the Solvency II regulatory framework.

James Agar, Head of Long Income at PIC, said: “We need our investments to provide secure cashflows to back our pension payments to our policyholders over the coming decades, so it’s vitally important that they generate considerable social impact in the short term and value in the long term.”

 

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