Market updates and sector developments

Close Brothers has unveiled plans to strengthen its capital position by optimising RWAs, including by reducing RWA growth by approximately £1bn through a combination of selective loan book growth, partnerships and significant risk transfer of assets related to its Motor Finance business through securitisations. The move comes amid the UK FCA’s review of the motor finance industry (SCI 6 February), of which the firm says it is preparing for “a range of outcomes”.

In its latest half-year results statement, Close Brothers says: “There is significant uncertainty about the outcome of the FCA’s review at this early stage, and the timing, scope and quantum of any potential financial impact on the group cannot be reliably estimated at present. [Nevertheless,] the board considers it prudent for the group to further strengthen its capital position.”

The firm says it continues to evaluate a range of other actions, including potential risk transfer of other portfolios through securitisation and other “tactical actions” that could enhance available CET1 capital by an estimated £100m. Combined with the decision not to pay any dividends in the current financial year, these measures could strengthen the group’s available CET1 capital by approximately £400m by the end of the 2025 financial year.

Away from motor finance, the firm lends across the asset finance, specialty finance and premium finance segments.

In other news…

Enpal secures ABS warehousing facilities
Enpal has partnered with Bank of America, Barclays, Canada Pension Plan Investment Board (CPP Investments) and Credit Agricole CIB to accelerate the rollout of its integrated financing product for residential solar and heat pump customers. Under the agreement, Enpal has secured total senior refinancing commitments of more than €1bn from the three banks in two separate ABS warehousing facilities, as well as total mezzanine debt commitments of €118m from CPP Investments. These off-balance sheet facilities will provide more than 35,000 German residential customers with an integrated financing solution for new photovoltaic (PV) systems and other renewable energy products.  

Enpal's last sizeable debt fundraise of more than €400m from DWS, Phoenix Group, ING and Black Rock took place in June 2023. The company's total structured refinancing commitments currently amount to more than €3.6bn.

Strategic capital partnership formed
Redwood Trust and Canada Pension Plan Investment Board (CPP Investments) - through subsidiaries of CPPIB Credit Investments - have formed a US$750m strategic capital partnership. The partnership consists of a newly formed US$500m Asset Joint Venture and a US$250m corporate secured financing facility that CPP Investments is providing to Redwood.

The JV will initially invest across the broad suite of Redwood’s residential investor bridge and term loans, targeting more than US$4bn in total acquisitions. Redwood and its subsidiaries will administer the assets on behalf of the JV.

Together, CPP Investments and Redwood will contribute up to US$500m of equity to the JV, with an anticipated split of 80% from CPP Investments and 20% from Redwood. Redwood will earn ongoing fees to oversee the administration of the JV and is entitled to earn additional performance fees upon realisation of specified return hurdles.

Meanwhile, the secured corporate financing will have a total capacity of up to US$250m and carry a two-year term, with a one-year extension option. The facility is structured with revolving capacity to support the continued growth and scale of Redwood’s mortgage banking platforms.

To further promote long-term strategic alignment, CPP Investments will also receive warrants to acquire Redwood common stock in an initial amount of approximately US$15m, with the option to acquire up to an additional US$36m if certain joint venture deployment targets are achieved.

Corinne Smith