Johnson Controls ties financing to sustainability metrics

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Johnson Controls International plc says it is one of the first industrial companies to tie its senior revolving credit facilities to its performance on select sustainability metrics.

The metrics include a 25% reduction in Johnson Controls’ own greenhouse gas emissions by 2025, a 25% reduction in reportable safety incidents, also by 2025, and the emissions and energy savings Johnson Controls generates for customers through its products and services.

Each of those measures is tied to a 0.25 basis point adjustment on quarterly fees and a 1.5 basis point adjustment on interest rates for two senior revolving credit facilities. One facility is a $2.5 billion, five-year line and the other is a $500 million, one-year line.

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In total, the decision could save the company around $2.6 million in fees and interest costs over five years if the company hits all of its targets. However, if the company misses on its targets it could add up to that amount to JCI’s costs.

“It’s really putting your money where your month is, right?” said Marc VanDiepenbeeck, vice president and treasurer of Johnson Controls. “If it goes well and we meet our commitments, there’s benefits that come with that, and if we’re unable to meet those commitments, there’s really costs associated with not being able to meet those commitments, not just not keeping our word.”

While a couple million dollars over several years may not seem like a lot for a company that reported $5.67 billion in net income in its most recent fiscal year, it is not insignificant.

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“Its real money, it’s not just a pro forma, doing it for the bragging rights, it actually does matter,” said Pieter Lens, treasury director of Johnson Controls.

A total of 18 banks have agreed to this sustainability line of credit with Johnson Controls. Joint lead arrangers and joint book runners on this transaction were JPMorgan Chase Bank, BofA Securities, Inc., Barclays Bank PLC and Citibank, with ING Capital LLC acting as the sustainability structuring agent.

VanDiepenbeeck said European banks are generally more familiar with these kinds of sustainability metrics in agreements.

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“For the U.S. market it’s more nascent,” he said. “But our bank group was extremely supportive and really enthusiastic.”

Lens said five other corporations have entered similar agreements in the U.S. syndicated loan market, but added that JCI is the first to tie sustainability metrics to quarterly fees.

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