Fit and sustainable
Australian private hospital operator Ramsay Health Care’s debut A$1.5bn (US$1.1bn) syndicated sustainability-linked loan stood out for its innovation, complexity in structuring and breadth of distribution.
Although the proceeds of the borrowing were for refinancing, this was the first SLL from an Australian healthcare company. The loan launched in May in a rapidly evolving market of financings tied to environmental, social and governance metrics that became more mainstream, particularly in Australia, as an increasing number of borrowers and lenders in Asia Pacific adopted sustainable practices.
Ramsay’s corporate structure, which comprises not only Australian operations, but also its offshore subsidiaries in Europe and joint venture in Asia, added challenges to structuring the SLL. Some of the key performance indicators of the SLL were also new to the Australian market.
The sustainability objectives address mental health first-aid training by a number of employees, energy intensity calculated by total consumption divided by patient days, three scopes of emissions (greenhouse gas, electricity and waste) divided by patient days, total renewable energy projects development, as well as the percentage of eligible suppliers with satisfactory sustainability ratings.
The SLL offered opening interest margins of 135bp, 145bp and 155bp for the three, four and five-year tenors, based on its BBB rating from Fitch. The margins will decrease by up to 5bp in aggregate or increase by up to 2.5bp if Ramsay meets all or none of the five sustainability KPIs.
When Ramsay’s loan closed in June, it achieved the distinction of being the largest syndicated SLL from Australia at the time. The overwhelming response from lenders demonstrated the appeal of a rare opportunity to participate in a sustainable financing and gain exposure to an essential services provider from an industry that had shown resilience during the global pandemic. Over 30 banks committed in excess of A$3.5bn, even though a slew of SLLs had come to the Australian market shortly beforehand.
The SLL was increased from a launch size of A$1.39bn and closed with 21 banks in the syndicate, including 16 first-time lenders, and mandated lead arrangers and bookrunners Commonwealth Bank of Australia, HSBC (sole sustainability coordinator), MUFG and National Australia Bank.
Another factor that contributed to the success was a strong external review from Sustainalytics, which said the deal was aligned with the sustainability-linked loan principles of the Loan Market Association and the Asia Pacific Loan Market Association and noted that the KPIs are meaningful enough to change the behaviour of the business. The KPIs are also aligned with the three pillars of Ramsay’s sustainability strategy: caring for the planet, people and community.
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