Air France-KLM announced the completion of its inaugural sustainability-linked bond (SLB) issuance, raising €1 billion (US$1.07 billion) in a high-yield offering, with the cost of debt on the bonds tied to the company’s performance on its emissions reduction goals.
The offering was composed of two €500 million tranches, including a 3.3-year maturity with a coupon of 7.250%, and a 5.3-year maturity with a coupon of 8.125%.
The deal marks the first euro-denominated SLB issuance in the airline sector.
Sustainability-linked debt is one of the fastest growing areas of sustainable finance, with attributes including interest payments tied to an issuer’s achievement of specific sustainability targets. Corporate interest in sustainability-linked loans has grown rapidly, as the financing provides flexibility to use proceeds for general corporate purposes, while with instruments such as green bonds, raised funds can only be allocated to specific categories of green projects.
Following an extended period of rapid growth, however, SLB issuance slowed sharply in late 2022, with Moody’s Investors Service citing factors such as growing market scrutiny on the credibility and robustness of issuers’ SLB targets, and the sector’s exposure to high-yield issuance.
Despite these factors, Air France-KLM reported strong demand for the offering, with the orderbook reaching €2.6 billion, or around 2.6x the offering size.
Air France-KLM released its CO2 emissions reduction strategy last year, with goals to achieve 30% lower Scope 1 and 3 “well-to-wake” greenhouse gas (GHG) emissions by 30% per revenue tonne kilometre (RTK) by 2030. The company said that the Science Based Targets initiative (SBTi) approved its goal in late 2022, as being in line with a well-below 2°C objective.
Under the terms of the new SLB, the bonds’ coupon will be indexed to the company’s progress towards its 2030 goal, specifically tied to the achievement of a 10% reduction of well-to-wake Scope 1 and 3 jet fule GHG emissions by 2025, compared to 2019.
The company stated that the issuance will help smoothen its debt redemption profile over the coming years, while supporting the delivery of its sustainable transformation plan, including the renewal of its fleet.
The post Air France-KLM Issues €1 Billion High Yield Sustainability-Linked Bond Tied to Climate Goals appeared first on ESG Today.