responsAbility launches USD175 m impact CLO for financial inclusion
We are thrilled to announce our new investment solution for investors. It is its first in terms of size and scope for the impact investing industry, and we are convinced that such investment solutions open up mainstream investor participation to impact investing in developing countries. Here is why:
This Collateralized Loan Obligation (CLO) is worth a USD 175 million, has a short maturity of three years and offers several tranches of transferable notes. The underlying pool of assets are 26 newly issued senior loans to fast-growing Microfinance Institutions and SME-Banks of 17 different countries in Latin America, Africa and Asia.
What’s in it for investors?
This securitization offers three tranches to investors, each with a different risk-return-profile: Senior Notes are the safest and pay a coupon of 2.8% while Mezzanine Note investors receive 5.4%. The Junior Notes yield up to 14% for taking the main risk and potentially absorb potential losses from defaults first.
Who’s behind the product?
We secured the Overseas Private Investment Corporation (OPIC) as a key investor for this transaction. Private-sector anchor investors include among others Swedish mutual life insurance company Alecta and US impact investing firm Calvert Impact Capital.
responsAbility is the originator and servicer of the loan portfolio. J.P. Morgan acted as arranger and placement agent of the transaction.
Impact at scale
Targeting financial inclusion in developing countries, the portfolio is guaranteed to create impact: The on-lent proceeds from the 26 local partner institutions will fund 30,000 small and mid-sized enterprise clients and 5.6 million microfinance borrowers, 81% of whom are women.
By driving financial inclusion in 17 developing countries, these investments will enable millions of households to gain access to financial services and to improve their livelihoods, finance their children’s education and contribute to economic growth.
What makes the product transformational?
This transaction takes impact investments in emerging markets to a completely new level, demonstrating that the market is ready to be included into the portfolio allocation of even the biggest players.
Going forward our ambition continues to be the same as during the past 16 years: We channel funds to high-impact growth companies across the developing world, because we believe deeply in sustainable development and investing for inclusive growth. Therefore, we continue to build similarly exciting opportunities and partner with investors to realize them.
The transaction has met with a lot of interest, both from investors and the international press. Here are just a few:
The Financial Times takes up the topic in this article, Impact investing creeps into the CLO market, emphasizing that “With demand coming from big pension funds and other investors eager for new ways to mitigate risk, ESG criteria are spreading. The latest is the market in US collateralised loan obligations, investment vehicles that contain bundles of leveraged loans. CLO managers are treating ESG as an increasingly higher priority, said Kevin Kendra, head of US structured credit at rating agency Fitch.”
The Wallstreet Journal quotes a JP Morgan Chase representative as saying: “This is an area of increasing focus for fund managers globally and applying capital markets technology to traditional impact investing creates the potential to open this sector to a wider range of investors.”
In this Bloomberg article, a consultant to responsAbility underlines: “The CLO and securitization format helps to attract institutional investors -- pension funds, insurance companies and even family offices, because many prefer a transferable, listed security and they might not have the capacity to invest in fund structures, which is the only structure currently available to most microfinance investors. They find the option of choosing a suitable risk/return profile very compelling and the nature of tranching can capture the widest range of investors. This template can potentially open up the market to become a multi-billion dollar asset class.”