1 March 2022
Reliance Rail closes A$1.8b Green Sustainability-Linked Loan
Reliance Rail Pty Ltd (‘Reliance Rail’) advises that it has achieved financial close on a new A$1.8 billion, 21-year Green Sustainability-Linked Loan (‘GSLL’) to fully refinance its existing bank debt facilities.
Reliance Rail is a Public Private Partnership (‘PPP’) with the New South Wales Government, established in 2006 to design, manufacture and maintain the largest single procurement of passenger trains in Australian history. Reliance Rail’s core assets are its 78 Waratah Trains, which account for roughly a third of Sydney Trains’ suburban passenger sets, and the Auburn Maintenance Centre (‘AMC’), a purpose-built facility in the west of Sydney, now used to maintain over 60% of Sydney Trains’ passenger fleet.
Reliance Rail’s GSLL is one of the first of its kind in the Asia Pacific market given it is certified as a ‘Green Loan’ by the Climate Bonds Initiative under its Low Carbon Transport criteria, as well as being a Sustainability-Linked Loan. The GSLL will complement Reliance Rail’s ambitious ESG strategies, as well as the commitment to sustainability improvement made by its long-term equity investors, AMP Capital and the Amber Infrastructure-advised International Public Partnerships.
In addition to the sustainability-related benefits of the GSLL, the long-dated loan term of 21 years is a significant achievement as this eliminates Reliance Rail’s potential future refinancing risk for the remainder of the project.
The GSLL structure incentivises Reliance Rail with reduced debt margins if ambitious Sustainability Performance Targets (SPTs) are met. A distinguishing feature of Reliance Rail’s GSLL is that any margin savings are to be used exclusively to fund sustainability improvements rather than to reduce net funding costs.
The SPTs align to four metrics, with an Infrastructure Sustainability Council (‘ISC’) Operations Rating score as the cornerstone target. ISC is Australia’s leading infrastructure sustainability body, and an Operations Rating will assist Reliance Rail to focus its sustainability efforts.
The other three metrics relate to the energy intensity of the AMC and Waratah Trains, solar PV generation at the AMC, and operational water consumption. The GSLL is structured to provide SPT-linked incentives over an initial 10-year period, with scope to review and extend.
Reliance Rail’s Chief Executive Officer, Chad Smithies, said, “This landmark transaction reflects the commitment of Reliance Rail, its partners, Sydney Trains, Downer Rail, AMP Capital and Amber Infrastructure, to improving the project’s long-term sustainability outcomes. We have adopted ambitious SPTs with the support of our key stakeholders and continued collaboration will be essential to achieving them.”
“While Reliance Rail already plays an important role in providing electrified transport infrastructure in New South Wales, the GSLL presents an excellent opportunity for a mature PPP to use its debt portfolio to intensify its role in the State’s transition to a lower carbon future. We believe this initiative will pave the way for other mature infrastructure projects to pursue similar transactions.”
The GSLL is supported by 12 participating lenders including BNP Paribas, Commonwealth Bank of Australia, DZ Bank, Industrial and Commercial Bank of China, Kookmin Bank, Mizuho Bank, National Australia Bank, Natixis, Nippon Life, Norinchukin, Sumitomo Mitsui Trust Bank, and Westpac.
BNP Paribas, Commonwealth Bank of Australia and National Australia Bank acted as Joint Sustainability Coordinators for the GSLL and worked closely with Reliance Rail to structure SPTs that all parties agreed were ambitious, relevant and impactful. DNV acted as Verifier and Second Party Opinion provider.
RBC Capital Markets acted as financial adviser for the transaction. King & Wood Mallesons (KWM) acted as legal advisers for the borrowers and White & Case represented the syndicate of lenders.