Macquarie opens debt taps on UK water

The Australian fund manager has teamed up with a UK private pension scheme in its first foray in the sector by buying notes issued by a domestic utility.

Macquarie Infrastructure Debt Investment Solutions (MIDIS), the infrastructure debt unit of Australia’s Macquarie Group, has taken part in the restructuring of Yorkshire Water’s inflation-linked swap portfolio, PDI sister title Infrastructure Investor reported. UK private pension scheme Universities Superannuation Scheme also participated in the restructuring, PDI understands.

The transaction, intended to remove existing mandatory breaks and reduce the UK utility’s liquidity risks, saw Macquarie acquire £50 million (€69.7 million; $76.9 million) worth of inflation-linked notes with final maturities of up to 2063. 

A source familiar with the matter said that the fixed-rate and inflation-linked elements of the notes is now with institutional investors, while banks are left predominantly with the floating rate element. 

The investment is MIDIS’ first in the UK water sector, and brings the amount it has so far deployed in UK regulated assets to more than £200 million.

“Yorkshire is one of the largest and best performing UK water utilities, operating in a stable, regulated sector with a strong management team. Our participation is particularly attractive for our pension scheme investors as it provides secure, long-dated inflation-linked cash flows which are complementary to their liability-driven investment needs,” said Kit Hamilton, managing director at MIDIS, in a statement.

The deal comes after a busy first half of the year for MIDIS, which provided £115 million to solar operator A Shade Greener in March, £106 million to renewables investment firm Low Carbon in May and a £45 million long-term debt facility to Bristol Airport in June.

It had previously offered £115 million of inflation-linked debt to Heathrow Airport and £21.5 million to renewables asset manager Quercus Assets Selection, both in February, after lending £60 million to a wind portfolio owned by Swiss-based fund manager Capital Dynamics in December 2014.

MIDIS was launched at the end of 2012 as Macquarie sought to target UK pension schemes seeking debt investments to match their long-term inflation-linked liabilities. The platform, which comprises a pooled fund and separately managed accounts, has so far raised total commitments of £1.8 billion.

It reached a £579 million first close on what it says is the UK’s first inflation-linked infrastructure debt vehicle last December.

Additional reporting by Anna Devine