Natixis IM Closes its First Solar Project Financing in New Zealand

Natixis Investment Managers (“Natixis IM”) has completed a major transaction to help fund solar energy transition in New Zealand.

Natixis IM contributed NZ$57m (US$34m) of a NZ$ 89m senior loan to a trust set up by the New Zealand government, which is responsible for the provision of rooftop solar panels and batteries to around 10,000 households across New Zealand.

The senior loan is secured against 20-year contracts with residential customers. The risk-return profile is considered strong given significant diversification of customer types and their locations. In addition, the receivables are fixed and not dependent on the amount of power produced by the solar panels. Default rates are historically very low, given that 90% of users pay by direct debit and prioritise heating, lighting and aircon above discretionary spending.

Angus Davidson, Head of Private Debt Real Assets APAC at Natixis IM, said: “The main risk is that customers stop paying or default. But when we looked at default stats, we saw that even during Covid default rates were very low.”

“Part of the reason is that there were stringent credit requirements for customers as they were signed up to the scheme.”

The yield on the senior secured loan is in excess of 7.5%, representing a significant innovation and complexity premium. Celine Tercier, Head of Infrastructure Finance at Natixis IM, said: “The margin on this deal is around 100bps higher than a comparable rooftop solar deal in Europe, reflecting both the complexity and innovation involved in the transaction and a lack of available long-term financing via the banking industry. “We add considerable value through the strength of our structuring team, which is unusual in this market and necessary for complex deals.”

The scheme is operated by solarZero, one of New Zealand’s leading rooftop solar companies, which has built up the residential portfolio over eight years. solarZero was bought by BlackRock’s private equity division in September 2022.

The contracts allow residential consumers to source most of their energy from their own solar panels and batteries, at a lower cost than they would pay from energy retailers. This is particularly attractive as electricity prices have risen significantly in New Zealand over the last 10 years.

New Zealand has set a target of 100% renewable electricity generation by 2035, and electricity demand is expected to double by 2050. “With rooftop solar penetration currently only at 2%, there is huge growth potential in this market and potential follow-up opportunities for Natixis IM and our investors,” said Davidson. In contrast, solar penetration in Australia is closer to 30%.

As renewables make up increasing amounts of New Zealand’s power generation, there is rising demand for grid ancillary services to cater to peak demand and grid frequency requirements. “The portfolio’s batteries are ideally positioned to provide lucrative services to the New Zealand’s grid – acting as a virtual power plant,” Davidson adds.

The senior loan is part of a program being arranged by New Zealand Green Investment Finance Limited (NZGIF), the New Zealand government-owned “green bank”. NZGIF’s mandate is to catalyze low carbon financing in New Zealand – pulling in the private sector to green loans. NZGIF also provided NZ$80m of mezzanine finance to complement the senior debt.

Natixis IM’s participation in the senior loan was funded via two channels: a mandate with a Hong Kong-based insurance company, and a Luxembourg-domiciled green vehicle.

The deal demonstrated flexibility – incorporating an innovative structure with elements of securitization and project finance to come up with a solution that matches borrower and investor requirements. “For the Hong Kong insurance company, we needed to arrange a fixed rate, pre-payment protection and cross currency swaps,” said Davidson. For the Luxembourg vehicle, specific insurance requirements had to be satisfied.

“All this takes time and effort, but we are very pleased with the outcome,” said Tercier. “This is the first time we have utilized two mandates/vehicles managed from different Natixis IM International places to source and arrange sustainable investments in the Asia-Pacific region.”