Packaging maker Novolex Holdings LLC's recent blockbuster sale is putting a spotlight on the company's efforts to reduce greenhouse gas emissions by tying financing terms to those sustainability efforts.
Apollo Global Management Inc. acquired a majority of Novolex from Carlyle Group in a deal between private equity funds. And while exact terms of the deal were not disclosed, Apollo did indicate $4.6 billion in financing is tied to the company's ability to deliver on GHG emission reduction promises.
This is the largest such sustainability-linked funding package ever made, the company said at closing.
Novolex, in an interview following closure of the deal, pulled back the curtain just a bit to talk about the importance of landing the sustainability-based funding. Rates for $3 billion in loans and $1.6 billion in bonds associated with the purchase are directly tied to the company's ability to lower GHG emissions in the years ahead.
Novolex's GHG reduction goal is 30 percent by 2030 and achieved a 10 percent reduction last year using 2019 as a baseline.
"When we were participating in this transaction, the sale to Apollo, the opportunity to obtain sustainability-linked financing really put a fine point on our sustainability credentials," said Matthew Winokur, Novolex senior vice president of corporate affairs. "Here is an opportunity to see third-party endorsement of our commitment to sustainability through the investor community."
Having funding attached to sustainability sends a message to investors, employees and customers about the company's views on sustainability, he said.
"From a capital markets perspective customers, it's always good to have as much access as possible to the broader investment community. And, increasingly, there is a class of investors who are focused solely or require exclusively that the companies that they invest in meet sustainability or selected ESG [environmental, social and governance] criteria and performance characteristics," Winokur said.
"This process gave us access to that investment community as well as the traditional investment community that is increasingly looking at companies not just from the financial perspective, if you will, but the sustainability ESG metrics that are increasingly important," he said.
"Our customers increasingly want to partner with suppliers like us, who are focused on sustainability goals," Winokur said. "They want partners that are making products more sustainable."
Having GHG emissions targets in place, along with financial rates attached to meeting those goals, also can have a positive impact on staff, he said.
"Employees want to feel the companies they are working for are sustainable and committed to sustainability and also take some pride in the fact that they are contributing to the ability of the company they are working for to achieve these goals."
Sustainability goals also can make a difference in attracting new employees. "Everyone knows it's a hot market, and more and more people want to work for companies that are sustainable," Winokur said.
Novolex makes a variety of plastic bags through its Hilex Poly division that touch the everyday lives of consumers, including so-called T-shirt retail bags, produce bags and specialty products such as ice bags. Other business units include Heritage Bag, a maker of institutional garbage can liners and medical waste bags. Novolex also operates Waddington Group, a thermoformed packaging maker that has operations in both North America and Europe. The company's portfolio has expanded in recent years to include paper fiber-based packaging as well.
Novolex is No. 9 in Plastics News' ranking of North American thermoformers with an estimated $500 million in annual sales for the region. It ranks as No. 6 among film makers in North America, with $1.5 billion in annual sales.
Carlyle Group, which had purchased Novolex, retains a minority stake in Novolex. Terms of the acquisition were not disclosed, but Bloomberg has previously reported the deal was worth $6 billion.
Winokur said the sustainability-linked funding provides the company with a voice when it comes to talking about plastics' role in society.
"It gives just a bit more of a credential to the company when speaking about sustainability more broadly. As you know, in the plastics debate, we still have to do things with respect to the products in terms of PCR [post-consumer resin], recycling and the like. But it's one more proof point, and kind of special one, because it's a proof point that isn't just us saying it; it's the investors saying it. That maybe gives us a louder voice when we have a seat at the table," he said.
"It's not going to win every debate, but it's going to give us a little more heft in these conversations that we're walking the talk," Winokur said.