Updated to include:

• two subscribers to ESG-linked notes
• coupons
• ESG tranche coupon movement
• legal advisers
• MUFG and NAB ESG structuring agents
• Sydney Airport's credit rating
• comments from Sydney Airport's Michael Momdjian and MUFG's Matthew Carr
• USD 15-yr tranche - $52 million

Sydney Airport has issued a US private placement (USPP), in which one 20-year tranche has a coupon linked to ESG performance as assessed by Sustainalytics. This issuance, on 13 February (2020), complements A$1.4 billion ($722 million) ESG-linked bank loans the Australian airport operator raised in 2019.

The triple-currency USPP is understood to be the first ESG-linked USPP and the first USPP issuance with potential for two-way pricing movement.

Sydney Airport Limited is the issuer.

MUFG and NAB were ESG structuring agents. MUFG, NAB and Scotiabank arranged the deal as joint lead placement agents.  

The USPP features various tranches with tenors ranging from 15 years to 30 years. The overall USPP totals A$600 million equivalent.

Subscribers numbered 14 life insurance investors, with two buyers of the ESG-linked tranche: MetLife Investment Management and Northwestern Mutual.

The ESG-linked issuance is a tranche of A$100 million, 20-year notes. The coupon can vary two ways, up or down, based on the airport operator's performance against sustainability and ESG metrics. Third party Sustainalytics will be making the independent performance assessments. 

The ESG-linked tranche's coupon starts at 3.23%. It then rises or falls by 5bps, or stays static, at each annual Sustainalytics assessment. It would rise 5bps if the airport operator fails the targets, fall 5bps if they are exceeded, or stay static if targets are met.

The issuer receives an ESG risk rating score. Michael Momdjian, Sydney Airport group treasurer, told IJGlobal: "Key assessment areas include corporate governance, product governance, human capital, business ethics, community relations, occupational health and safety, and emissions, effluents and waste."

Sustainalytics is a global ESG and corporate governance research and ratings provider.

The bonds feature a delayed settlement, free of charge, to June of this year (2020).

The tranches are:

• $52 million, 15-year tranche − maturing 2035, coupon of 2.83%
• €50 million ($54 million), 15-year tranche − maturing 2035, coupon of 1.06%
• A$220 million, 20-year tranche − maturing 2040, coupon of 3.28%
• A$100 million, 20-year tranche − maturing 2040 (ESG-linked), starting coupon of 3.23%
• A$120 million, 30-year tranche − maturing 2050, coupon of 3.53%

Matthew Carr, head of debt capital markets for Australia and New Zealand at MUFG Securities Asia, told IJGlobal: "From the outset it was our intention to price the ESG tranche alongside a vanilla tranche of the same maturity to evidence the price differential between the two. On this transaction, 20 years best suited the maturity preference of the particular investors."

The airport operator has already issued twice in the USPP markets, with this issuance bringing the total outstanding in the USPP market to approximately A$1.6 billion.

Proceeds are to repay all drawn bank debt, giving liquidity for future debt maturities and funding planned investments.

The legal advisers for the USPP were: Sidley Austin for the issuer and Greenberg Traurig for investors.

The issuer Sydney Airport is rated BBB+ (S&P) and Baa1 (Moody's).

With the tranches issued this month (February), Sydney Airport's debt maturity portfolio average has extended 10 months to mid-2026.

Last year (2019), ANZ and BNP Paribas were the sustainability coordinators and bookrunners for Sydney Airport's first ESG-linked debt raise. The deal was a A$1.4 billion bank debt refinancing. 

On 23 May 2019, they closed what was at the time the Asia Pacific region's largest syndicated sustainability-linked loan, and the largest for an airport globally, which also has interest rate rises or drops dependent on sustainability performance as assessed by Sustainalytics each year.

The loan tranches were:

• A$570 million, three-year tranche
• A$530 million, four-year tranche
• A$300 million five-year tranche

At least 10 banks participated.