GRID Power Bonds

This offer is now closed

GRID Power Bonds are fixed-rate loan notes offering to pay 5.0% p.a. over a term of five years (not guaranteed).

Bondholders will lend money to Gresham House Energy Storage Holdings plc (the Issuer) and have security over the issuer’s bank account. 

The money raised will be used to finance the expansion of its portfolio of operational utility-scale energy storage system (ESS) projects. Energy storage is a cost-effective way of helping address supply-demand imbalances on the National Grid.

Gresham House Energy Storage Holdings is a subsidiary of Gresham House Energy Storage Fund plc (“Fund”), a listed investment trust – the UK’s largest fund focused on utility-scale energy storage, having raised £237.9 million in equity since IPO. 

This is the first tranche of a £40 million loan note programme. Once the programme is complete, the loan to value at Fund level is expected to be up to 16.8%. 

The offer is managed by Gresham House, an AIM-quoted specialist alternative asset manager, which currently manages c.£3 billion on behalf of institutions, endowments, family offices and private investors across a range of investment mandates. Of this, more than £500 million is in new energy projects.  

Given the low-interest-rate environment, we expect this offer to be popular with experienced investors seeking income.

Important: The information on this website is for experienced investors. It is not advice nor a research or personal recommendation to invest. If you’re unsure, please seek advice. The bonds are unlisted and not covered by the Financial Services Compensation Scheme. Investments are for the long term. They are high risk and illiquid and can fall as well as rise in value, so you could get back less than you invest.


Highlights

  • Fixed rate of 5% gross per annum – not guaranteed
  • Interest payments are covered at least 5x by forecast EBITDA
  • Seeking to raise up to £40 million 
  • Net assets of £237.9 million (March 2020, unaudited)
  • Low loan to value of up to 16.8%
  • Proceeds to fund the acquisition of new energy storage projects
  • No other debt on balance sheet prior to this raise
  • Bondholders' payments have priority over dividend payments to the investment trust
  • Minimum investment £105,000 (plus 1% placement fee) – you can apply online

GRID Power BondsThe offer

Gresham House Energy Storage Holdings plc (the Issuer) is raising up to £40 million through the issue of secured bonds (GRID Power Bonds), mainly to finance the acquisition of new battery storage projects to add to its existing portfolio – 10 ESS projects with total capacity of 215 MW.   

The GRID Power Bonds aim to offer a fixed rate of interest of 5.0% gross p.a., with a bullet repayment at maturity – please note interest and capital repayments are not guaranteed. 

Bondholders will have the benefit of security over the bank account of the Issuer.

The maturity date is five years from when the shares are issued. 

However, the Issuer can redeem the GRID Power Bonds at any time. Should this happen within the first two years (minimum holding period), bondholders are expected to receive any accrued interest plus an early redemption payment – so, their total return could match what they would have received if the GRID Power Bonds had been held for the full two years.

Illustrative returns – not guaranteed

The examples below are for illustrative purposes only; they are not a guide to future performance, nor are they a target, forecast or guarantee. 

The examples are based on an investment of £105,000, including a 1% placement fee (total invested £106,050). 

  5 years
(maturity)
2 years
(minimum holding period)
18 months
(early redemption example)
Total invested £106,050 £106,050 £106,050
Interest £26,264 £10,500 £10,500*
Redemption of principal £105,000 £105,000 £105,000
Net profit £25,214 £9,450 £9,450
Investor IRR 4.83% 4.52% 5.97%
*This includes interest accrued (£7,897) and early redemption payment (£2,603), paid by the Issuer.

Please note this is an investment not a savings account: interest rates are not guaranteed, nor is your capital. This offer is only for experienced investors who can afford to potentially lose their money. GRID Power Bonds are not covered by the Financial Services Compensation Scheme.

Tax treatment

Interest payments will typically be subject to deduction of UK income tax at the basic rate, currently 20.0% (UK withholding tax). The 5.0% p.a. fixed rate of interest is equivalent to a coupon of approximately 4.0% after tax. Please note, tax rules can change and benefits depend on circumstances; exceptions and reliefs might apply. Please seek tax advice if unsure. 

What protection do GRID Power Bondholders have?

GRID Power Bonds will have security over the bank account of the Issuer and therefore the income from the portfolio. This means in a worst-case scenario, whilst the bondholders could not instruct the sale of assets, any proceeds from the sale of assets would flow into the Issuer bank account, over which the Bondholders have security.

In addition:

  • At the point each tranche is issued, the Issuer must be satisfied its portfolio has 5x interest cover in the next 12-month period
  • Other borrowings are permitted subject to the Issuer being satisfied that the Portfolio has 5x interest cover over the next 12 months
  • Quarterly dividend distributions by Gresham House Energy Storage Fund Plc are permitted only if the next semi-annual interest payment is reserved in cash in the Issuer bank account.
  • Gresham House Energy Storage Fund Plc will acquire new projects and advance debt, via the Issuer

The manager

Gresham House Asset Management Limited, the Investment Manager appointed by Gresham House Energy Storage Fund plc, is wholly owned by Gresham House plc, an AIM-quoted specialist alternative asset manager with a market capitalisation of £180 million (June 2020).  The business has assets under management of £3 billion across a range of investment mandates including strategic public equity, private equity, forestry, renewable energy, housing and infrastructure.

Gresham House Energy Storage Fund plc is an investment trust listed on the main market of the London stock exchange. The Fund raised £100 million in its initial public offering in November 2018 and has continued to raise equity to further expand its portfolio. The Fund is now the UK’s largest listed utility-scale energy storage fund, with net assets of £237.9 million (March 2020, unaudited). The Fund currently has 10 operational ESS projects with a total connection capacity of 215 MW. These 10 assets are referred to as “The Portfolio”. 

Gresham House Energy Storage Holdings Plc is “the Issuer” of the GRID Power Bonds and is a wholly owned subsidiary of the Fund. The Issuer will hold the Portfolio, via a number of wholly owned Project special purchase vehicles (“SPVs”). Subsequently, new acquisitions are expected to be acquired by Issuer, increasing the size of the Portfolio.  

Investment strategy

The UK’s electricity generation is undergoing fundamental change, shifting from coal and gas-fired power stations towards renewable energy. As a result, wholesale energy prices are becoming increasingly volatile, with power prices frequently reaching zero or even negative at times of supply imbalance. This presents a problem for the National Grid.

Energy storage is a cost-effective solution to the intermittency of renewable energy and could help address supply-demand imbalances on the National Grid in real-time. The increasing volatility of wholesale power prices also enhances the commercial opportunity since a growing proportion of the revenue generated by ESS is from trading the volatility of power prices by “buying low” (charging batteries), and “selling high”, (discharging batteries). 

ESS projects have four sources of revenue:

  • Asset Optimisation – the ability to maximise income from the wholesale market and the Balancing Mechanism (through which the National Grid balances supply and demand in each half-hour trading period)
  • Firm Frequency Response – the provision of a dynamic (i.e. proportionate) response to small supply-demand imbalances, second by second, based on changes in the GB grid’s electrical frequency
  • Capacity Market – a UK government mechanism whereby generators (including batteries) are paid a fixed fee for being on call to deliver power when required at times of extreme need (known as ‘stress events’)
  • Grid payments – at times of peak demand National Grid make payments to generators (including batteries) during the three peak half-hours when demand is highest for the year

As the UK moves to hit its net zero carbon target, the need for energy storage is expected to increase substantially over the coming decade. Gresham House predicts over the next four years there is a requirement for 10 GW of energy storage connection capacity, rising to 30 GW over the next ten years. For context, it is estimated the UK’s current capacity is 1 GW.

Building upon its success in raising capital from the equity market, the Fund is now seeking to raise capital through the issuance of GRID Power Bonds to fund its expansion plans. The Fund intends to issue GRID Power Bonds to make investments in accordance with its investment policy, including:

  • Funding the acquisition of operational ESS projects, and/or
  • Advancing loans to ESS projects to acquire equipment, and/or
  • Refinancing existing shareholder loans to ESS projects.

The Fund is permitted to raise debt financing subject to it not exceeding 50% of net asset value at the time of drawdown. Based on the last published NAV this debt raise of £40 million will constitute leverage of 16.8%, when issued in full. The Fund does not currently have any other borrowings.  

Current portfolio overview

Before issuing the GRID Power Bonds, the Portfolio will be restructured so that the assets are held by the Issuer. 

The Portfolio currently consists of nine operational assets valued at £138.2 million as at December 2019. On 3 July 2020, the Portfolio added a tenth asset for a consideration of £20.1 million. The remainder of the assets of the Fund (net current assets of £205.9 million and £31.2 million cash proceeds from the March 2020 equity fundraising) will be routed through the Issuer as the Fund makes further acquisitions.

The Fund has a large pipeline of future projects (140 MW capacity) which could see the Portfolio grow substantially in the short term. 

Risks – important

This, like all investments available through Wealth Club, is only for experienced investors happy to make their own investment decisions without advice. 

These unlisted bonds are investments, not savings. Your capital is tied up for a fixed term. The GRID Power Bonds are not covered by the Financial Services Compensation Scheme.

The bonds are not readily realisable. They tend to be illiquid and hard to sell. They should only form part of a balanced portfolio and you should not invest money you cannot afford to lose. Before you invest, please carefully read the Risks and Commitments and the offer documents to ensure you fully understand the risks. 

Although the rate of interest is fixed at the outset of the loan, should the Issuer run into difficulties it may not be able to repay your capital or make interest payments at the rate set or at all.

Interest payments are expected to be increasingly supported by “Asset optimisation”, which relies on volatility within the power market to capitalise on arbitrage opportunities.

Capital repayment is subject to the Issuer being able to use cash flow generated by its operating portfolio, or being able to secure replacement capital or a combination thereof.  There can be no guarantees this will be the case.

Please note, the Issuer has not yet received a trading certificate from the Registrar of Companies. The Issuer may not conduct any business before it has received it, so until then any offer to subscribe for GRID Power Bonds will not become effective.

Please see the Offering Memorandum for more details on the risks. Please also note the details in the Offering Memorandum are subject to change. 

Charges 

A summary of the main charges is shown below. The investment may have additional charges and expenses: please see the provider documents for more details. 

Investor charges
Full initial charge 1%
Wealth Club initial saving
Net initial charge through Wealth Club 1%
Annual management charge
Administration charge
Transfer fee (if bond transferred) Min £500
Dealing charge
Performance fee
Investee company charges
Initial charge 1%
Annual charge See below
All fees and charges are stated exclusive of VAT, which may be applicable in some cases. Any fees and charges payable by the investee companies or the underlying businesses do not directly come out of your investment. However, they will effectively reduce the returns generated by investee companies and therefore impact your investment.

More detail on the charges

Our view

Given the extraordinarily low-interest-rate environment, a loan note paying fixed interest of 5% per annum, where the principal and interest payments are covered several times by assets and cash flow, could be a compelling offer for income-seeking experienced investors comfortable with the risks. 

Gresham House expects to raise £10-£40 million through the issuance of GRID Power Bonds to expand the asset base of the £237.9 million (March 2020, unaudited) Gresham House Energy Storage Fund Plc investment trust, so the maximum loan to value at fund level is 16.8%. The investment trust has no other borrowings. GRID Power Bond investors should, therefore, be well covered by the assets of the Portfolio.

Investors appear well protected by the terms of the issue. As mentioned above, interest payments are covered at least five times by forecast EBITDA, and any further debt issuance can only occur if interest payments remain covered a minimum of five times. In addition, the investment trust can only make dividends distributions if the next semi-annual interest payment is reserved as cash. The bonds have security over the bank account of the Issuer. 

Gresham House is one of the UK’s leading alternative asset managers, with a market capitalisation of £180 million. Please note, the bond is high risk and energy storage is an emerging asset class. The value of the energy storage assets is contingent on the ability of the assets to generate an income. Investor capital is at risk.

Wealth Club aims to make it easier for experienced investors to find information on – and apply for – tax-efficient investments. You should base your investment decision on the provider's documents and ensure you have read and fully understand them before investing. This review is a marketing communication. It is not advice or a personal or research recommendation to buy the investment mentioned. It does not satisfy legal requirements promoting investment research independence and is thus not subject to prohibitions on dealing ahead of its dissemination.

The details

Type
Secured loan notes
Rate of interest
5% p.a.
Interest payment
Semi-annual
First interest payment
31 March 2021
Term to maturity
5 years
Redemption of principal
Bullet repayment at maturity
Minimum investment
Offer now closed
Last updated: 17 July 2020