Boreal is a Norwegian public transportation company providing ferry and bus services across Norway and parts of Sweden. Given Norway's topography of many islands, fjords, and mountains, ferries are an essential component of Norway’s transport infrastructure, providing the population with efficient connections. The company has an annual turnover of NOK 4.3bn, around 2,800 employees and owns 55 ferries and over 800 buses.
One of the key global trends Vantage supports through its infrastructure debt investments is the decarbonisation of transport systems. The public transportation system is vital to improving mobility efficiency and there are ample opportunities to accelerate decarbonisation through the electrification of these systems.
Vantage first provided debt financing to Boreal in 2022 having been impressed by the company’s alignment to these goals of decarbonisation and improved public mobility infrastructure. We were attracted to the company’s ambition to transition towards more sustainable vessels, by reducing reliance on fossil fuels through the transition of its ferry and bus fleet to electric and biofuel propulsion. Boreal’s ultimate aim is to deliver a decarbonization path that enables it to be emission-free (net zero in mobility assets) by 2040.
The ferry sector’s transition creates a risk for existing operators who are slow to decarbonise as their fleet could become obsolete if municipalities increasingly tender for low-emission ferry routes. However, through due diligence, we learned that Boreal was well positioned having already begun electrifying its fleet and had established a track record of winning low-emission tenders, thereby reducing the credit risk of the transaction. To support the company’s ongoing energy transition, part of the proceeds of Vantage’s financing are being used to fund the capex required to further electrify Boreal’s fleet, in turn allowing the company to bid for more contracts of this kind and continue to grow its business.
The financing was structured as a sustainability-linked loan with the margin linked to the company’s achievement of three KPIs to incentivise further improvement on key ESG metrics. These KPIs were determined after financial close to allow the lender group and external consultants to form a comprehensive understanding of the ESG challenges and opportunities facing the company.
Vantage played a proactive role in the negotiation of these KPIs and their related Sustainability Performance Targets (SPTs), with a focus on ensuring they followed the Sustainability Linked Loan Principles of being relevant, core and material to the business. Given a core rationale of the investment was to support the company’s decarbonisation, environmental KPIs/SPTs were important and were agreed at 1) a 10% annual reduction in CO2 emissions in the sea segment, and 2) a 5% annual reduction in CO2 emissions in the land segment. The third SPT was related to a social aspect, linked to employee welfare and safety, which we deem important for the sector. This targets keeping the Total Recordable Injuries Frequency (TRIF) rate for the sea segment at a level lower than the industry average.
These KPIs and SPTs allow Vantage to promote and monitor the borrower’s sustainability progress, enhancing the impact, as well as the credit worthiness, of our investment.
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