Coats adds ESG to bank debt as KPIs remain in focus

Coats adds ESG to bank debt as KPIs remain in focus

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Coats, the UK industrial thread producer, has signed a $360m loan, adding environmental, social and governance metrics to its bank debt for the first time.

The borrower has signed a three year deal with two one year extension options. 

Coats has linked the margin on its facility to three key performance indicators: reducing energy intensity, transitioning to recycled raw materials, and employee engagement with external reviewer Great Place To Work, which certifies companies on employee satisfaction.  

Bank of Ireland, Citi, Commerzbank, DBS, BNP Paribas and Standard Chartered were bookrunners, with the last two banks also acting as sustainability and documentation coordinators.  

BBVA, KBC and Raiffeisen Bank International joined as mandated lead arrangers.  

The KPIs highlight “an evolution of KPIs within the sustainability-linked loan market,” said Cécile Moitry, co-head of sustainable finance markets at BNP Paribas.  

A higher focus on KPIs away from the traditional metrics of carbon and greenhouse gas output reduction, has been sweeping not only the ESG loan market, but corporate bonds too.  

In loans, Rabobank developed a bilateral loan facility last month with only one KPI linked to food waste, which is intended to be used for grocers and food producers. More recently, BBVA signed what it claims to be the first sustainable financing deal for Spain’s funeral sector with a €9m bilateral deal for Funespaña.  

Two of the three KPIs on that deal are linked to social measures – namely promoting female staff to management and increasing aid to vulnerable groups. Only one KPI is linked to carbon reduction from incineration services emissions.  

In the bond market, sustainability bankers say that deals with KPIs more closely linked to a company’s idiosyncratic ESG challenges is more likely to capture investors’ attentions.  

This was seen in a debut deal for Swedish fashion retailer H&M. The February trade got €5.4bn of orders for a €500m trade, with investors particularly interested in the company linking its debt to using more recycled materials, a boon for the infamously wasteful fashion sector.  

Coats’ sustainability strategy is centred on five elements – water, energy, effluent and emissions, social and living sustainably, with BNP Paribas saying that these “are reflected” in the sustainability linked loan.  

“Energy intensity links directly to emissions and hence to climate change,” said Andrew Morgan, head of sustainability at Coats. “Good employment practices and employee engagement across our global operations are crucial to all aspects of our business delivery, and the transition to recycled raw materials is an important precursor to our longer-term goal of building product circularity into our business model.”  

 

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