Actis adds a new twist to sustainability-linked sub lines

The infrastructure manager has secured a $1.2bn credit facility for its latest energy fund that incorporates a 'use of proceeds' format and a margin ratchet.

Infrastructure manager Actis has secured a sustainability-linked fund finance facility – with a twist – for its fifth energy fund.

The firm has described the facility as representing the “next generation” of sustainability-linked credit facilities as it is the first to combine a “use of proceeds” format (whereby funds drawn should be used for certain specific purposes) with a margin ratchet. The more impactful the use of proceeds is deemed to be, the better the rate on the facility.

ESG-linked subscription credit lines have become a familiar feature among sustainability-minded private fund managers large and small. Notable examples of firms securing such facility include Carlyle, EQT, Baring Private Equity Asia and more recently Africa-focused firm Helios Investment Partners. Typically borrowing GPs can achieve a discount on the facility’s margin by meeting one or a small handful of predetermined sustainability goals. It is an innovative, rapidly developing market with little uniformity between facilities.

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Actis’s revolving credit facility of up to $1.2 billion adds a new element to this market which the firm and its lenders hope will “catalyse widespread adoption of this new hybrid format in other financing structures”, according to a statement.

Any drawing on the facility will benefit from a margin discount if it meets one of the three criteria:

  1. Invest in an energy sector that contributes to climate change mitigation.
  2. Invest in a country where energy access is limiting economic growth.
  3. Creates “new positive impact” as determined by Actis’s in-house impact measurement system.

The more criteria met, the greater the margin discount. The firm didn’t disclose how much the cost of the loan can be discounted, but New Private Markets understands it to be in line with other ESG-linked margin ratchets.

Actis Energy Fund V’s focus is on sustainable infrastructure projects that contribute to UN Sustainable Development Goal 7 (affordable and clean energy), which raises the question: wouldn’t all of its investments tick at least one of these three boxes. Not necessarily, says Shami Nissan, head of sustainability for the firm. The fund may well invest for example, in gas to power projects if Actis deems the impact to be overall beneficial: such a project would not meet criteria one. And while most of the fund’s investments are in emerging markets, a minority are not.

The sustainability coordinators for the facility are Citi and Standard Chartered, with four other banks comprising the lending syndicate. Val Smith, chief sustainability officer at Citi, described the facility as representing “the cutting-edge of sustainability-linked credit facilities”.