Green/sustainable loan: Masmovil’s €1.7bn refinancing

IFR Awards 2019
3 min read
Tessa Walsh

ESG hits lev loans

The leveraged loan market took its first step into sustainable financing in 2019 by adding ESG criteria to a €1.7bn covenant-lite refinancing for Spanish telecoms operator Masmovil, reflecting growing investor interest in the space.

Private equity-owned firms were late to the ESG party, but this changed after a presentation at BNP Paribas’ high-yield and leveraged finance conference in January produced a deal that set a clear precedent and started a necessary conversation.

“It completely changed the dialogue in the market with the financial sponsors. We’re having very strategic discussions that we didn’t have a year ago,” said Delphine Queniart, BNP Paribas’ deputy head of global sustainable finance and head of financial sponsors coverage for global markets.

Masmovil, Europe’s fastest growing telecom company and Spain’s fourth-largest operator, attended a presentation outlining the political and financial impact of ESG on businesses and was interested in using ESG ratings to highlight its own corporate and social responsibility strategy.

After three years of rapid growth, including the acquisition of a majority stake in Spain’s Yoigo and Portugal’s Nowo and ONI, Masmovil revamped its capital structure and mandated a group of six banks, led by underwriters and global coordinators BNP Paribas (sole sustainability coordinator) and Goldman Sachs.

The deal financed the repurchase of €883m of convertible bonds from minority owner Providence Equity Partners and refinanced €890m of debt, along with a €100m capital increase.

It allowed Masmovil to extend its maturities to 2026 and cut its borrowing costs by replacing a bank-only amortising term loan A with an institutional refinancing that also included a groundbreaking ESG-linked margin ratchet on a €150m capex line and a €100m revolving credit.

The €250m of undrawn lines were sold to banks and a €1.45bn TLB was placed with institutions. The TLB priced at the end of May at 325bp over Euribor, at the tight end of guidance with a 0% floor and 99.5 OID.

Masmovil got a score of 67/100 from S&P’s Global Ratings ESG Evaluation in mid-July, which was a key performance indicator and set a pricing benchmark for a 15bp margin reduction if Masmovil's ESG rating improves, and a similar increase if it deteriorates.

The score is tested annually and is linked to ESG criteria including data protection, avoiding corruption in bidding for licences, employee welfare, governance, and supplying fair tariff products that ensure mobile and broadband access for minority communities.

The deal falls under a broad green umbrella, as the lines between green and sustainability loans are blurred in the loan market due to relationship banking, unlike the bond market, and highlights progress in extending the product’s range.

“We were able to build on the experience and knowledge that we had from other transactions and push it out into another market,” said Charlotte Conlan, BNP Paribas’ EMEA head of high-yield bond and loan syndicate.

The deal was repriced in November at 262.5bp over Euribor, cutting 62.5bp from its margin.

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