Asset realisations

£1.7 billion raised by new asset class 

In December 2017, on behalf of the Department for Education (DfE), UK Government Investments (UKGI) successfully completed the first sale of part of the pre-2012 (Plan One) English student loan book. As well as ensuring value for money to the taxpayer, the transaction – which raised £1.7bn – sought to ensure the position of all borrowers would not change as a result of the sale.

Structured as a multi-tranche securitisation backed by loans with income contingent repayments, this was a world first and launched an entirely new asset class in the capital markets. The capital structure included 3 rated bonds and 1 unrated, with unique and innovative characteristics tailored to the long-term nature of the underlying loans, each designed to appeal to specific pools of capital and attracted significant demand.

This was the first in a programme of sales anticipated to raise approximately £12bn of proceeds, which UKGI is leading on behalf of DfE. UKGI’s model of combining public and private sector expertise has produced a multi-disciplinary transaction team uniquely placed to deliver this complex and innovative project.

GIB green mission continues after sale delivers £2.3 billion to UK government

In August 2017, UKGI, on behalf of the Department of Business, Energy and Industrial Strategy, successfully completed the sale of the Green Investment Bank (GIB) to Macquarie Group Limited. The £2.3bn transaction returned all the taxpayer funding invested in GIB since its creation, including set-up costs, and generated a profit of around £186m.

The UKGI team managed the transaction through a competitive process and led the complex negotiations to ensure that the government’s sale objectives were achieved. As well as securing value for money for the taxpayer, UKGI led the legislative process to remove GIB from the government’s balance sheet so that GIB could benefit from raising funds externally, a key transaction and policy objective.

As part of the acquisition negotiations, Macquarie made a series of commitments which mean that GIB’s green mission will continue in the private sector. Macquarie committed to investing £3 billion in green energy projects over the next three years, operating in accordance with GIB’s established green purpose of advancing the UK’s commitment to the low carbon economy.

UKGI was instrumental in the creation and development of the GIB, the first institution of its kind. Launched in 2012, GIB has been a significant success story, supporting 100 green infrastructure projects in the UK under government ownership. For every £1 it has invested, it has attracted approximately another £3 of third party capital, so attracting new investors to the green infrastructure market.

Returning Lloyds to the private sector 

UK Financial Investments (UKFI) successfully completed the sale of the government’s holdings in Lloyds Banking Group in March 2017. The government took a stake in the bank during the financial crisis. UKFI’s role was to sell the government’s stake in the bank while achieving value for money for the taxpayer. It sold shares in Lloyds in two ways; through a series of Accelerated Book Builds (ABBs) which achieved over £7bn in proceeds and through two trading plans, which delivered over £9bn and £3bn respectively. The trading plans were designed to sell shares in the market over time, in an orderly and measured way. The decision to implement a trading plan was made following detailed analysis by UKFI and its advisors of a range of matters including the structure of the plan, Lloyds’ share price performance, a detailed assessment of fair value and wider market conditions. The trading plans were a new and innovative way of disposing of shares. Instead of selling them in large blocks, the shares were ‘drip fed’ into the market by Morgan Stanley, who managed the plan on behalf of UKFI. UKFI set the parameters of the plan to make sure that the government achieved value for money.

Largest ever sale of financial assets by a government in Europe

In November 2015 UK Financial Investments Limited (UKFI), working with UK Asset Resolution Limited (UKAR) and HM Treasury, successfully completed the sale of £13.3 billion former Northern Rock mortgages, acquired during the financial crisis.

Following a highly competitive bidding process, UKAR agreed a sale to a consortium led by US private equity group, Cerberus. The sale comprised of £11.9 billion of mortgages from the Granite securitisation vehicle within Northern Rock Asset Management (NRAM) and additional linked loans (£1.4 billion). Some 270,000 mortgages and loans were sold in the deal. The taxpayer received £5.5 billion in cash while Cerberus took on nearly £8 billion of existing liabilities from UKAR with total proceeds implying a c. £280m premium to book value.

The NAO reviewed the transaction and concluded that “This was an extremely large and complex transaction that was professionally executed within a tight timeframe… in the context of the overall objective of swiftly reducing the balance sheet, the sale achieved value for money.”

Sale of the UK stake raises £757 million

In March 2015, HMG raised £757 million through the sale of its 40% shareholding in Eurostar and associated preference share. The buyer was a consortium comprising Caisses des Depots de Quebec and Hermes Infrastructure. The sale process had been launched the previous October and was structured as a two phase competitive auction.

UKGI established a skilled team to lead the negotiations and sale process on behalf of Government. This team was a blend of individuals with both private sector and civil service backgrounds to navigate the path between investors and Whitehall. This careful mix allowed for growth and knowledge building of all team members.

Prior to launching the process, UKGI ensured that comprehensive due diligence material was in place which allowed us to maintain a strict timetable and maximise competitive tension. In addition, negotiations before the sale launch with the other shareholders (SNCF of France – 55% and SNCB of Belgium – 5%)  put in place a new shareholders’ agreement. This became effective on completion of the HMG sale and enshrined certain rights for the purchaser to maximise value from the sale.
In reviewing the sale, the NAO noted the strong competitive tension and ability to maximise value for the taxpayer.

UKGI optimises tax payer value through realisation of pension assets

In 2012, as part of the preparations for the privatisation of Royal Mail, approximately £28 billion of pension assets were transferred from the Royal Mail Pension Plan to the government. UKGI manages the government-owned company that holds these assets (“BIS Co”) and for overseeing their realisation, which may include potential sales.

UKGI’s responsibilities include:

• Asset optimisation – implementing a strong governance and reporting framework, analysing and reporting on portfolio performance and risk, making sure that external investment managers are held to account.
• Transaction advice and execution – UKGI has led strategic negotiations and sales including the sale of a substantial property portfolio, private equity fund interests, and considers future sales; and

Of the pension assets transferred to government, the liquid assets were realised in the first few months following their transfer. This resulted in a net gain to the taxpayer. The rest of the portfolio is in the process of being realised over a longer timeframe to optimise value for money.