Global investment company Eurazeo has just contracted the first ever syndicated sustainability-linked loan (SLL) for a private equity firm, for which BNP Paribas acted as sole Sustainability Coordinator. This €1.5bn revolver loan from a pool of 13 banks refinances a €1bn facility - a great success in terms of syndication. We take a closer look at what this milestone deal means for the private equity sector with Alexis Collonge, Sustainable Finance Coordinator for Capital Markets EMEA, and Bertrand Valet, Head of Financial Sponsors Coverage Continental Europe.
The margin on Eurazeo's loan is linked to sustainability key performance indicators, marking a milestone move towards greener capital markets.
Hello Alexis and Bertrand. This is the first sustainability-linked loan in the private equity (PE) sector: why is this only happening now?
" Eurazeo's SLL is a first for a private equity firm. This is a logical evolution in the sense that PEs follow the same investor trend as the broader institutional market, having realised that value creation and sustainability are closely entwined in the long term. "Alexis Collonge: The way SLLs work is similar to other revolving credit facilities, with the particularity that the interest paid by the borrower is in part tied to specific sustainability key performance indicators (KPI). Borrowers that achieve their sustainability targets benefit from favourable interest rates, while a failure to do so will lead to higher rates. So indeed, the first SLLs were typically for Corporates that wanted to align financing and sustainability objectives - for example in the utilities, industrials, food, housing or education sectors - before a few SLLs appeared in the finance sector, for example with Deutsche Börse. Also, SLLs enable Corporates to better showcase their sustainability strategy and increase their commitment to meet certain sustainability targets vis à vis capital markets, which are giving increasing value to these criteria.
Bertrand Valet: Eurazeo's sustainability-linked loan is a first for a private equity firm. This is a logical evolution in the sense that PEs follow the same investor trend as the broader institutional market, having realised that value creation and sustainability are closely entwined in the long term and becoming increasingly aware of their responsibility to society. Since PE firms have by nature the power to influence the CSR trajectory of the companies in their portfolios, they can play a key role in further diffusing sustainability in the economy.
Tell us about Eurazeo's commitment to sustainable investment.Bertrand Valet: Eurazeo integrated best-in-class ESG practices for its investment cycle as early as 2008. More generally, it has long been strongly committed to the highest sustainability standards such as the United Nations Principles for Responsible Investment (PRI); Global Compact; the Carbon disclosure project; France Invest – the French Association of Investors for Growth.
Also, Eurazeo is the only private equity firm to be included in five reference ESG indices: Ethibel Sustainability Index (ESI), Euronext Vigeo Eiris, MSCI World, FTSE4Good and Stoxx ESG Leaders. For all these reasons, I am not surprised that Eurazeo is pioneering this first syndicated SLL in the private equity sector, leading the way for the development of a new market segment.
Apart from being a first for private equity, how is this facility innovative?Alexis Collonge: The mechanism of the facility itself is innovative because it mixes two levels and types of KPIs. First, the management company, Eurazeo SA, has committed to become carbon neutral. Second, the SLL is tied to strict sustainability governance for Eurazeo's portfolio of companies throughout the investment cycle. Moreover, Eurazeo has committed to allocate the notional adjustment of the margin to carbon compensation projects, whether or not the margin adjustment is to its benefit. This reflects Eurazeo's specificity as a European PE firm with a particularly high level of sustainability practices.
What does this transaction indicate for the broader market?Bertrand Valet: This is another signal that sustainability-linked loans (followed by other types of sustainable banking products) are on their way to becoming mainstream, including in the private equity world, which was not previously spontaneously associated with sustainability. This transaction not only shows that the PE industry is ready to do its share, but also that PE firms feel the same investor pressure as corporates and banks to reconcile sound financial performance with high ambitions in terms of sustainability.
|Alexis Collonge is Sustainable Finance Coordinator for Capital Markets EMEA, thereby fostering the diffusion of sustainability-related awareness, initiatives and product cross-fertilization within this perimeter and beyond. He has notably actively contributed to the establishment and development of the Bank's leading sustainable loan franchise.|
Bertrand Valet is responsible for BNP Paribas Financial Sponsors Coverage in Continental Europe and is leading a number of our strategic client relationships in private equity across Europe. Amongst others, he was recently involved in the IPO of Verallia which BNP Paribas led on behalf of the Company and its shareholders including Apollo and the BPI. This transaction with Eurazeo will be a stepping stone to develop our sustainable finance franchise with financial sponsors across Europe.