The core facilities in a credit deal announced yesterday by tanker giant International Seaways, Inc. (NYSE:INSW) are in line with the Poseidon Principles, the global framework used by an increasing number of lenders to assess the climate alignment of their ship finance portfolios.
The deal saw International Seaways close on senior secured credit facilities in an aggregate principal amount of $390 million. The facilities consists of a 5-year $300 million senior secured core term loan facility, a 5-year $40 million core revolving credit facility, of which $20 million has been drawn, and a 2.5-year $50 million senior secured term loan credit facility (the “transition facility”).
The core facilities include a sustainability-linked pricing mechanism that will be a first of its kind for a NYSE-listed ship owner and operator and which has been independently certified as meeting sustainability-linked loan principles.
The adjustment in pricing will be linked to the carbon efficiency of the International Seaways fleet as it relates to reductions in CO2 emissions year-over-year, such that it aligns with the IMO’s 50% industry reduction target in GHG emissions by 2050. This key performance indicator is calculated in a manner consistent with the de-carbonization trajectory outlined in the Poseidon Principles.
“International Seaways has always been committed to environmental initiatives and minimizing risk of all forms of pollution and waste streams,” said President and CEO Lois Zabrocky. “Today, through this sustainability-linked pricing mechanism, we have created an innovative partnership with our banks that further advances our commitment to sustainability initiatives. We intend to continue to focus on our ESG [environmental, social and governance] footprint where appropriate and align our sustainability goals with those of our various stakeholders.”
The data used in the calculation of the fleet’s carbon efficiency will be validated by an independent organization approved by each ship’s flag state, with ABN acting as Sustainability Coordinator.
The proceeds from the facilities were used to refinance $385 million existing high-cost secured and unsecured debt of the company and its subsidiaries. This included repaying the company’s 2017 Term Loan Facility and its senior secured credit agreement with ABN and repurchasing the company’s outstanding 10.75% subordinated notes.
Jeffrey Pribor, International Seaways’ CFO, said the new credit facilities will reduce the company’s annual interest expense by approximately $15 million, by lowering our average interest rates on the refinanced portion of our debt by 3.5%, and our overall average interest rates by 2.0%, while enabling INSW to maintain one of the lowest leverage ratios in the industry and low cash break evens.”
Borrowings under the core facilities initially bear interest at LIBOR plus 2.60%, while borrowings under the transition facility bear interest at LIBOR plus 3.50%. The margin on the core facilities may adjust by 0.20%, based on whether the company meets certain leverage ratios. The company currently anticipates the margin on the core facilities will decrease to 2.40% by the third quarter of 2020.
Nordea Bank Abp, New York Branch, ABN AMRO Capital USA LLC (“ABN”), Crédit Agricole Corporate & Investment Bank, DNB Capital LLC and Skandinaviska Enskilda Banken AB (PUBL) acted as mandated lead arrangers and bookrunners. Nordea acted as administrative agent.