Alexandra Grant and Ana Grbec, partners in Milbank LLP’s European Leveraged Finance/Capital Markets Group, take a deep dive into the development of ESG in the European Leveraged Finance Market in “It’s Easy, Being Green – Development of ESG in European Leveraged Finance Market,” the latest installment in the Reorg Expert Views series.
In 2021, we saw ever-increasing volumes of ESG bonds and loans in the European leveraged finance market – particularly “sustainability linked” high yield bonds and syndicated loans. To put it in some context, in 2021 Reorg EMEA Covenants tracked approximately €49 billion of institutional loan transactions with a margin ratchet linked to ESG-related criteria (43% of the total leveraged loan market in Europe, up from 5% in the year before), and €25 billion of green, sustainability, and sustainability linked high yield bond issuances (18% of issuances).
The rise is driven by increasing demand on all sides – from institutional investors in the debt (who are integrating ESG into their overall investment strategies at a rapidly increasing rate) to the private equity sponsors themselves (whose LPs are pushing them more and more to consider ESG in their valuation and asset selection processes). This demand looks set only to grow in line with the changing regulatory environment – it is expected that more investors will start to integrate ESG requirements as they are required to comply with the new EU Disclosure Regulation (which requires financial market participants to publish their sustainability risk policy to explain how they integrate such risk into decision-making processes (irrespective of any stated ESG focus or strategy)).
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About Milbank’s ESG Capabilities
Green and sustainable finance is an important tool for the transition towards a de-carbonised economy. Milbank has one of the strongest capital markets and leveraged finance practices in the market with unprecedented expertise in the disclosure of climate-related risks, sustainability-linked financing structure and green ratings. We have assembled one of the finest teams of any international law firm to advise clients on a range of matters related to disclosure of climate risks, sustainability-linked finance structures and green ratings. Recent experience includes advising:
- The initial purchasers in connection with Zenith Finco Plc’s offering of £475 million 6.500% Green Senior Secured Notes due 2027 pursuant to their newly established green bond framework and related revolving credit facility.
- The mandated lead arrangers on the €500 million term loan B refinancing of Carlyle’s portfolio company Saverglass.
- Citycon on Its €350 Million Green Capital Securities Offering.
- Canary Wharf Group on its £906.3 million (equivalent) debut bond offering pursuant to their newly established green bond framework and related revolving credit facility.
- Public Power Corporation S.A., the biggest electricity company in Greece, on the first sustainability-linked high yield bond in Europe. This was the first European sub-investment grade sustainably linked bond.
- Globalworth Real Estate Investments Limited, a leading real estate company in Central and Easter Europe, on its inaugural green bond offering and cash tender offer.
- The arrangers in relation to a new amendment for Portugal-based packaging firm Logoplaste, which created the first institutional term loan with interest payments directly linked to ESG factors.
- The initial purchasers in connection with a sustainability-linked bond financing of Apollo’s acquisition of AS Graanul Invest.
- Lar España on two green bond issuances this year: its €400M Senior Unsecured Green Bond Offering and related tender offer and with its €300M Senior Unsecured Green Bond Offering.
- The underwriters and take-and-hold investors of the €1.32B (including a RMB tranche of the equivalent of EUR €80m) senior credit facilities with ESG-linked pricing in relation to The Carlyle Group’s acquisition of all of the shares in Flender GmbH.
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