Swiss energy producer Axpo misses SLB targets, triggers coupon step-up

Axpo Holdings, Switzerland’s largest power producer, has missed sustainability targets linked to three sustainability-linked bonds (SLBs). A notice published by the Swiss Stock Exchange shows that missed targets were linked to SLBs with maturity dates in 2026, 2027 and 2029.

The company also confirmed in its note to the stock exchange that the missed targets have resulted in a coupon step-up for these bonds, which Axpo has agreed to pay.

Axpo’s SLBs

Compared to green bonds, SLBs rely on key performance indicators (KPI) rather than agreements over the bond’s use of proceeds. SLBs often include target observation dates against which such KPIs are assessed.

Analysis from the Anthropocene Fixed Income Institute (AFII) shows that KPIs for Axpo’s SLBs were related to cumulative installed renewable energy capacity since 2021. The SLB targets were 1500MW by September 2024 and 2300MW by September 2025. Both targets were missed.

In its previous reports, Axpo had hinted at missed targets. Axpo’s 2024 sustainability report notes that SLB-linked renewable energy capacity additions that year were below target. In the same report, the company mentioned that it expects to miss the 2025 target.

This, the company says, has to do with a range of challenges such as rising geopolitical headwinds in energy markets, skilled worker shortfalls and lengthy approval procedures.

“Despite missing the expansion targets, Axpo considers it important to maintain its ambitious sustainability objectives”, the report reads.

Axpo’s use of SLBs accelerated after 2022, when the company published its SLB framework and issued its first SLB. The use of renewable energy capacity as a KPI for SLBs was included within this framework.

Back in September 2021, the company had a total installed renewable energy capacity of 354 MW. In January 2022, when the framework was published, the company vowed to expand its solar PV portfolio to 10GW by 2030 and multiply its onshore wind capacity tenfold by 2030.

Market reaction

Axpo’s missed SLB targets have resulted in a coupon step-up. For the three bonds in question, the coupon premium rose by 0.34% (for bonds maturing 2027), 0.2% (bonds maturing 2026) and 0.15% (bonds maturing 2029).

According to AFII’s analysis the announcement of a missed SLB target should, in keeping with historical precedent, result in a repricing of affected bonds. Citing Bloomberg data, AFII’s research notes shows that even though markets processed the announcement, repricing of the bonds is yet to come.