John Czapla and Adrian Lowery of VRC’s Portfolio Valuation practice group are featured in Private Debt Investor. In the article “How to Handle Sustainability Triggers in Private Credit Valuation,” the pair consider the issues surrounding the widespread use of sustainability-linked loans as pricing and valuation can be complex.

“Sustainability-linked loans – where a loan’s economics are tied to the borrower’s achievements of certain environmental, social or governance key performance indicators – aren’t coming to the loan market. They’re already here,” Czapla points out.

Lowery goes on to further discuss market activity in Europe where “…the volume of leveraged loans containing an ESG-linked margin ratchet reached three-quarters of the total issuance in the fourth quarter of 2022,” and in the U.S. market where issuances were down, it still reached $206 billion in 2022.

Czapla and Lowery say that as sustainability-linked loans continue to grow in prevalence, private debt valuation teams will need to refine their approaches to assessing fair value for less liquid SLL loans.