9 December 2004 – LAWFUEL – First law news – Clifford Chance has advised DEPFA BANK PLC as originator on the first ever UK PFI loan securitisation. This is a £392 million synthetic, partially funded CLO deal, which for the first time securitised a pool of UK Private Finance Initiative (PFI) loans (used to fund public infrastructure assets) in a publicly rated debt transaction.
The purpose of the transaction was to transfer to investors the major part of the credit risk associated with a reference pool of approximately £392 million of public infrastructure loans, thereby freeing up regulatory capital in DEPFA’s balance sheet and boosting return on equity. The transaction was arranged by Merrill Lynch International. DEPFA transferred the credit risk to KfW, the AAA rated German, publicly-owned infrastructure bank, under a credit default swap, which in turn purchased credit protection from investors under a super senior swap and an issue of credit linked notes make by an Irish entity, Essential Public Infrastructure Capital plc.
The initial collateral consisted of 24 individual project loans sourced from DEPFA BANK PLC’s loan book and originated under the UK’s PFI or Public Private Partnership (PPP) programme. The loans fund a variety of public infrastructure, including schools, hospitals, roads, police stations, court buildings and other public offices.
This is the first time assets of this kind have been securitised and the deal was complex.
Partner Peter Voisey who led the securitisation team commented on the complexity of the deal:
“The nature of PFI loans does not immediately lend itself to securitisation, although a synthetic structure is easier to accommodate than a true sale. The transaction benefited from access to KfW’s established securitisation platform and accordingly the principal documents were under German law, in common with other KfW intermediated deals. We were very pleased to have been instructed by DEPFA to advise on this innovative deal and I expect further PFI backed transactions to come to market in due course”.
Partner Peter Voisey and senior associate Florian Wagner advised on the securitisation and partner, Gavin Teague, assisted by Carrie Fleming, advised on the PFI elements of the deal.
Linklaters acted for Merrill Lynch as arranger and KfW as sponsor. A&L Goodbody advised DEPFA as to Irish law.