• flow podcast - episode 12

    Using a securitisation to promote energy efficient housing

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July 2021

Winning the sustainable finance accolade at the Euronext Lisbon Awards 2021 was the icing on the cake for Spanish mortgage lender Unión de Créditos Inmobiliarios’s (UCI) securitisation. Deputy CEO Philippe Laporte tells flow’s Janet Du Chenne how the company’s green bond is making a difference


Janet Du Chenne: UCI issued the RMBS Green Belem No. 1 securitisation in 2020. How does this securitisation align with your mission to create more homes and to promote energy efficiency in housing?

Philippe Laporte:  Let’s start with how the securitisation aligns with our sustainable goals. This Green Belem deal not only has the commitment of third party provider Sustainalytics, but also the European Investment Bank (EIB) as one of the investors in the senior tranche of the issuance. The originality of this pioneer deal also enabled a framework behind for the creation of labour and sustainable houses.

In the last few years we have integrated sustainability and responsibility into our commitments to our different stakeholders. We have long-standing relationships with the real estate industry through real estate intermediaries, and with the different municipalities. We provide them with many innovative products and quality advice - not only responsible advice on purchasing a house, or having a long term mortgage, but increasingly technical advice around the sustainability. This is a long term journey we're inviting our customers on. So it's not only a one time purchase and that's it. What we're trying to do is create this ecosystem where we give advice on what is the best type of house customers can purchase, knowing that the house that they can purchase is available. We advise them on how to improve the efficiency, by providing them with cash or equity capital to put into their loan and improve their housing.

These improvements are not aesthetic or structural but more to do with energy consumption. Real estate is one of the worst sectors in terms of energy efficiency because there's a huge stock of houses that were built 20-30 years ago. And developers were not thinking that the housing had to be built in order not to impact on the planet. So when we started our sustainable approach, we found the perfect mix of both elements of both funding and ways to improve housing and the real estate in both countries. Although the underlying portfolio is comprised of Portuguese properties the proceeds will enter both Spain and Portugal. And it also improves the mapping of our ESG risk. As well as compensating our carbon footprint with the ‘E’ we are also enabling Diversity and Equal growth. Of course the S is less visible than the E in this sustainable context but S has come to the fore especially during the last year confinement. And the last part is the G, which is all the responsible and transparent criteria that we're communicating to our customers and to our intermediaries. Again three quarters of mortgage granting and mortgage distribution is done through intermediaries, or the real estate agents. So they have to understand our footprint, how we’re working, and then find alignment on the type of housing and neighbourhoods for customers. So it's a combination of risk, financial and our ESG footprint.

JDC: RMBS Green Belem No.1 is the first issuance under the STS regulation (EU Securitisation regulation). Please comment on the steps you took to ensure that this was aligned with that regulation.

PL: While this deal came out in April last year we started the project back in June 2019. First we approached the EIB on our initiative and they were pleased that it was perfectly in line with their goal of financing the sustainable world. Then we had to find the instrument. We’re a frequent issuer in Spain and we wanted to try and find some diversification. So as part of the diversification we also have a branch and a mortgage portfolio in Portugal which represents the underlying portfolio against which Green Belem was issued. A high percentage of the houses we finance in in Portugal have ‘a’ and ‘b’ energy label certificate. So, this was also something innovative, especially in the Iberian Peninsula. When we started building this type of approach it had to be STS especially as it was supposed to go out to the market like all other Spanish deals. Back in 2019, we didn't know anything about COVID or that we were going to be locked down. So we started the journey with Santander structuring the transaction with us and then approached the regulator back in January 2020. This was going to be the first RMBS placed in the market after Lehman, and it was also going to be the first STS transaction for the regulator. So we also had to be sure that the regulator was aligned with our project, given that our timeline was to go out to the market in March. In order to achieve this timeline, we had to ensure that all the participants in the deal – including the ratings agency and the regulators - were aligned with the STS framework. Knowing that one of the actors was going to be the EIB and that the securitisation was going to be green, not only was it going to be STS, but it was also going to be a green bond, because of the commitment to reinvest the proceeds in the next couple of years. It was the first time that a structure of this kind had been arranged.

We also talked with the Bank of Portugal. Since Covid had started to spread, we decided to postpone it by one month so instead of coming out in March, we agreed with the EIB that it was going to be a private placement. We agreed on the structure, the ratings, and credit enhancement on the deal, and that the legal framework was totally aligned with STS. This was the first deal to come out in the European market and it came out in April, three weeks after the global lockdown. So, we needed to be sure that all the actors in this deal were safe and at home. Only then could we give the green light to move forward. But structuring it as STS was the easiest part. Due to the elements I mentioned before, the winds were against us. That’s why seeing this deal come out was tremendously positive, with everybody participating, even with stronger headwinds.

JDC: How did you manage investor engagement during these times of crisis?

PL: Initially, when these projects come out it’s the usual 7-10 roadshow. In this case our mid-March time frame was the worst time to go out because all the markets were locked down and all the investors were going back home. When we rang there was no answer.  That’s why we decided to structure the deal as a private placement with the EIB and a couple of investors, instead of postponing until after the summer as we did not know whether things would get better. Having been there from the beginning these parties knew the portfolio very well. They agreed on the pricing and the stake that they would take. So, let's say that this was a hybrid engagement.

JDC: Comment on how the issuance also aligns with the wider industry goals of energy efficiency and real estate in the context of the Energy Efficient Mortgage Initiative of the European Mortgage Federation (EEMI-EMF).

PL: our Green bond framework follows the guidelines of the International Capital Market Association’s (ICMA) green bond principles and the EEMI of the EMF, of which our CEO is Deputy Chairman. So we were able to speak with the commission, and with the main actors of the mortgage business to build this mortgage framework initiative. So having our green bond framework on one hand and our goals and ESG footprint on the other made it easier to launch this green finance instrument, which we have been a pioneer of. With these combination of elements including the EMF’s promotion of the initiative last year, we were proud to see someone using this initiative. It’s a pity it came out at such a bad moment but it perhaps provides us with an opportunity to show that even at the worst moment – given that we talked with a lot of different actors – that a deal of this nature can be done.

JDC: UCI also won the Euronext Lisbon Sustainable finance award. Please comment on how that sets you apart from your peers.

PL: Yes, it was a great surprise, and very satisfying as it gave us all the visibility that we wanted to have on this initiative. We were pioneers of this original transaction and shows our commitment to use the proceeds of this deal in both countries. All the press around it was not only good in Portugal but we are very well known in the RMBs Spanish market. This gave us the nice publicity we were looking for and shows the commitment of our people we're working with on this approach. So, now we're putting that prize signature on all of our emails that we're sending, because we’re proud of showing that this was the huge deal.

JDC: What was unique about this deal in terms of your service requirements from your corporate trust provider Deutsche Bank?

We have a long history in the Spanish RMBs market, working with a lot of different actors, including Santander. In crossing the border into Portugal we joined hands with Santander who had experience in the ABS market. The bank and our lawyers pointed out that Deutsche Bank was the perfect partner for this transactions. We have been working with them for more than one year and I can indeed say that we're very satisfied with all the work done behind the scenes. As you know when you do a deal you first structure it and put it in place and then it’s the reporting and sending the cash flows that needs to be done. It’s a question of how fast and how much quality recording you can achieve with provider. So up to now, no complaints. We’re very happy with the collaboration we have with Deutsche Bank.

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