Within the different types of sustainable loans, Revolving Credit Facilities (RCF), the already known financing product, have become increasingly popular in recent months. Today we know that this type of product can also be sustainable, but what exactly is a Revolving Credit Facility?
A RCF is a financing instrument that companies frequently recur to, particularly in syndicated format. For Investment-Grade (IG) companies, RCFs usually serve as backup instruments - a condition required by credit rating agencies to maintain their rating to issue bonds. That is why 'back-up' RCFs are instruments set up not so much to draw down from them but by way of back-up line in case access to capital markets is compromised. When used, proceeds of this line are normally devoted to general corporate purposes. They are eminently relationship-driven transactions for banks, i.e. tools that grant access to another type of business with the borrowing companies.
Sustainable revolving credit line
In the last year many companies have arranged sustainable revolving credit lines with their relationship banks. Unlike other sustainable formats, the purpose of these lines is not to fund eco-friendly projects or investments, since these instruments are usually not set up to be drawn. A revolving credit facility is set up as sustainable, or converted to sustainable, by referencing its price to the sustainability-related performance of the company and, particularly, its evolution.
In this type of operation, the interest rate paid on drawdowns is linked to the company's ESG (Environmental, Social and Good Governance ) score, or to one or more standout sector-specific indicators, or KPIs (such as CO2 emissions.) For the first time, a sustainable debt instrument may become cheaper if the borrower improves its ESG score with respect to the score awarded at the start and/or meets the specific reference KPIs selected for this funding.
BBVA, bringing sustainable solutions to its customers
BBVA is committed to supporting the economy’s transition towards low-carbon models and helping its customers in this transition. BBVA approved its ‘Pledge 2025' in 2018, through which the bank will mobilize €100 billion through 2025 in green financing, sustainable infrastructure, social entrepreneurship and financial inclusion.
BBVA has been a pioneer and is a dominant player in the sustainable loan business. Today it is one of the most active organizations on the world stage in this field and the indisputable leader in Spain. In 2018, BBVA has led 17 sustainable finance deals in Europe and the Americas for customers in various sectors and has acted as sustainability coordinator or agent in more transactions than any other institution. As of the end of June 2019, it has led 11 additional transactions.
In recent months, the bank has signed sustainable revolving credit lines with many of its wholesale clients, including Spain’s Gestamp, Meliá Hotels or Redexis, France’s giant EDF or Britain’s SSE and Mace.