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Freshfields advises Tesco PLC on the issuance of new ESG-linked Notes

Freshfields Bruckhaus Deringer ('Freshfields') has advised Tesco PLC (Tesco) and Tesco Corporate Treasury Services PLC (TCTS) in relation to their inaugural issue of sustainability-linked bonds (SLBs). The bonds were also the first SLBs to be issued by a UK rated issuer or by a retailer.

On 27 January 2021, TCTS issued €750m ESG-linked Notes (guaranteed by Tesco) under their Euro Medium Term Note (EMTN) programme, with a 0.375% coupon and an 8.5 year maturity, the exceptionally low coupon an indication of both the appeal of Tesco as an issuer and a strong market appetite for ESG-linked bonds.

The bond was aligned to Tesco’s agreed Sustainability Performance Target of reducing Scope 1 and 2 Group Greenhouse Gas (GHG) Emissions. The coupon step-up was 0.25 per cent per annum if, in respect of the 2025/2026 financial year, Tesco fails to reduce their specified GHG emissions by 60 per cent, as against their 2015 baseline levels of such emissions.

Concurrently with the issue of the ESG Notes, Tesco and TCTS also launched Sterling, Euro and USD tender offers with the aim of strengthening their balance sheets by addressing upcoming debt maturities and achieving net annual interest savings. The non-US Tender Offers were dependent on the successful completion of the issue of ESG Notes under the EMTN Programme. The US Tender Offer and the non-US Tender Offers successfully settled on 28 January 2021 and 29 January 2021 respectively.

Peter Allen, co-head of Freshfields’ international capital markets team, who led the Freshfields team with associate Claire Churchill, said: “This is the latest transaction in a series of great sustainability-linked collaborations with Tesco and illustrates how well a large corporate can align its financing strategy with its environmental policy and what a demand there is for this in the market.”