Kensington completes green bond securitisation in UK RMBS markets

Jake Carter

June 11, 2021


Kensington Mortgages has become the first lender to complete a green bond securitisation in UK residential mortgage-backed securities (RMBS) markets.

It has priced its latest securitisation – Finsbury Square 2021-1 GREEN – upsized from £480m to £750m.

The transaction is the first labelled green bond from a lender within the UK asset-backed securities (ABS) market and Kensington Mortgages is the third issuer in Europe to issue a green bond.

The green bond aligns with the International Capital Market Association (ICMA) Green Bond Principles (2018 edition), contributing towards meeting the United Nations’ Sustainable Development Goals.

It has been formally accredited and recognised by ISS ESG, a leading provider of corporate governance and responsible investment solutions.

Under the green bond framework, the issuer (Finsbury Square SPV) will finance the purchase of a pool of loans through a term non-recourse securitisation of the underlying loan portfolio, involving the issuance of securitised green bonds to investors, only the senior notes is deemed green.

The senior bonds have been priced at +65bps over the Sterling Overnight Index Average (SONIA), which Kensington reported reflects strong investor demand for its RMBS program.

The deal has garnered strong demand from global investors with a total of 23 unique investors across the three tranches.

It was oversubscribed across all tranches and the all-in pricing achieved a total cost of 70bps for a funding duration of 4.6 years.

Kensington Mortgages aims to support its customers to meet the challenge of decarbonisation and therefore is committed to lending sustainably.

The lender will use the unallocated proceeds raised from the green senior notes to continue developing its range of green products in the next years, with targets to allocate more than £800m to green loans by 2026.

It plans to develop new green products to incentivise borrowers to buy energy-efficient properties or renovate existing buildings to improve their environmental performance.

Under Kensington’s green bond framework, the minimum standard required for a property to be designated as an Eligible Green Project is a ‘B’ EPC rating, which represents an emissions intensity in the top 15% of residential buildings in England and Wales.

The decision to develop a green bond framework follows the 2020 launch of Kensington’s first range of environmentally friendly mortgage products, the eKo Cashback Mortgage which rewards borrowers with £1,000 cashback if they improve the energy efficiency of their home within the first 12 months of ownership.

Alex Maddox, capital markets and digital director at Kensington Mortgages, said: “The majority of the UK housing stock is energy inefficient and responsible for one-fifth (21%) of all UK carbon emissions.

“Improving the efficiency of our existing housing stock is one of the best ways to help the UK transition to a low-carbon economy.

“Kensington’s decision to develop a green bond framework is built on its commitment to invest in projects that promote progress on environmentally sustainable activities, help borrowers reduce their carbon footprint, and contribute to increasing the amount of capital allocated to sustainable uses of proceeds in the financial sector.

“Kensington is committed to sustainable lending – social bond and green bond transactions will form a clear part of Kensington’s funding strategy.

“Kensington sees ESG factors as key to its long-term performance and as a result, we are integrating ESG into our business strategy.

“We were the first specialist lender to publicly release corporate ESG targets in August 2020.

“As part of our ESG targets to address environmental and social risks, we have embedded ESG within our lending strategy, originating both green loans and loans to viable borrowers that are underserved by high street banks, showing our commitment to accelerate progress towards a better and cleaner planet.”

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