The UK’s £18.4bn (€21.4bn) Pension Insurance Corporation (PIC) has bought £100m of debt that will go towards a renewable energy plant in the north of England, with the debt structured as a rare Consumer Prices Index-linked transaction.
The debt issue raises financing for the construction of Teesside Renewable Energy Plant, in Yorkshire.
It is planned to be a 299-megawatt wood chip and pellet-fuelled power station to generate electricity for the equivalent of 600,000 homes, 24 hours a day.
Macquarie Specialised Investment Solutions (MSIS) structured the deal, with the pensions insurer buying the entire £100m tranche.
The debt has an eight-year maturity and is amortising.
The plant has a contract for a difference (CFD) supported by the UK government; CFDs are agreements intended to provide greater certainty and stability of revenues to energy producers.
Finnvera, Finland’s export credit agency (ECA), has provided a guarantee of the debt.
It was highlighted as a rare CPI-linked transaction, with Macquarie noting that debt transactions in the ECA financing market typically paid fixed or LIBOR-based floating coupons.
In the UK, inflation-linked debt – government and corporate – tends to be linked to the Retail Prices Index (RPI) rather than the CPI, at least as concerns public deals.
Elizabeth Cain, debt origination analyst at PIC, said: “This investment is not only an important piece of UK infrastructure but also provides a high-quality, long-dated debt investment to support payment of pensions as part of our prudent investment strategy.
“It also represents one of a small number of CPI-linked transactions in the market, which PIC has been at the forefront of developing with a view to supporting UK pension schemes seeking to transfer their CPI-linked liabilities.”
A spokesman for PIC told IPE it was aware of only three other public CPI-linkers, including a 2015 secured debt issue, in which PIC invested, to finance retirement housing for the Church of England.
Macquarie noted that the CPI-linked indexation formula used in the Teesside transaction hedges the energy plant’s CPI-linked revenues under the UK’s CFD regime.
PIC last year invested £75m in airline debt issued by Virgin Atlantic Airways.
Earlier this year, it announced its involvement in a £40m social housing debt deal.