Kensington Mortgages upsizes green securitisation Finsbury Square to £750m

The deal saw strong demand from global investors, attracting 23 backers and being oversubscribed across all three tranches, Kensington said.

The senior notes were deemed as green because they aligned with the ICMA Green Bond Principles and were formally accredited by governance provider ISS ESG. This was the first transition from a lender in the UK asset-backed securities market to be labelled a green bond, and the third such in Europe.

The senior notes were priced at 65 basis points over SONIA, “reflecting strong investor demand for our residential mortgage-backed securities (RMBS) program,” the lender said.

The all-in pricing achieved a total cost of 70 bps for a funding duration of 4.6 years.

The lender’s Green Bond Framework provides for the issuer, Finsbury Square SPV, to finance purchase of a pool of loans by way of a term non-recourse securitisation of the underlying portfolio, which involves issuing securitised green bonds to investors. 

Kensington said its target was to allocate £800 million of proceeds from the senior notes to develop its green lending products by 2026, as part of its commitment to sustainable lending.

The green range of products will aim to incentivise borrowers to buy energy-efficient properties or renovate existing buildings to improve environmental performance.

The lender’s Green Bond Framework requires that for properties to be eligible, they must have a minimum EPC rating of B, which puts them in the top 15 per cent for performance on emissions for residential buildings in England and Wales.

Alex Maddox, capital markets and digital director, at Kensington Mortgages (pictured), said: “The majority of UK housing stock is energy inefficient and responsible for 21 per cent of all carbon emissions in the UK. Improving the efficiency of our existing housing stock is one of the best ways to help the UK transition to a low-carbon economy.”

“Our Green Bond Framework reflects our commitment to invest in environmentally sustainable projects, help borrowers to reduce their carbon footprint, and to increase the amount of capital allocated to sustainable uses in the financial sector,” Maddox added.

In February, Kensington completed its £472 million GMG 2021-1 transaction. This year it became one of the first specialist lenders to collect EPC data from applicants and to share the information, at loan level, with investors for all new RMBS origination deals. 

Last year, the lender launched its eKo cashback mortgage which rewards borrowers for making energy-efficient improvements to their homes. 

The latest deal brings Kensington’s total RMBS issuance to £13 billion, the largest of any specialist lender.