Having shot to prominence in the early part of this decade, have sustainability-linked loans (or SLLs) become an enduring part of the private credit landscape? Or have they quietly gone out of fashion?

In this special edition of the podcast, co-hosted with PEI Group affiliate publication New Private Markets, we seek to chart the rise of sustainability-linked loans and assess how they are being used today.

To recap: these loans feature a margin ratchet whereby the borrower’s performance against certain sustainability targets can result in a lower interest rate in the case of outperformance, or an increase in the case of underperformance.

To help us assess the situation, we enlisted Nishan Srinivasan, head of origination and partner at Ambienta Credit. Since its inception in 2007, Ambienta has invested in companies operating in the realms of environmental and resource efficiency. Srinivasan spent 22 years at Credit Suisse, latterly as global co-head of leverage finance origination. He joined Ambienta in 2023 to help launch its credit platform.

In the early days of SLLs it was not uncommon to see ratchets of 5 basis points relating to sustainability goals that were easily achievable, says Srinivasan. “Typically this was, dare I say, window dressing,” he said. “Quite de minimis in the context of the cost of the loan”.

Fast forward to today and the targets are more ambitious, the discounts more meaningful – as much as 40bps – and there is more frequently a margin uplift in the event of failure.

In this episode, we examine some headline-grabbing company failures such as First Brands, Tricolor and Carriox – and ponder what lessons and insights there might be for the private debt asset class.

While private debt exposure may have been relatively limited in these instances, can the asset class be confident that it has its own house in order? Jiri Krol of the Alternative Investment Management Association and Alternative Credit Council acknowledges there is stress in the system – but believes that stress may have already peaked and that, in general, private debt has once again demonstrated its resilience in tough times.

But Matthias Kirchgaessner of Plexus Research is not convinced that private debt is immune from concerns around troubled companies, with fierce competition among lenders meaning that some due diligence shortcuts may have been taken.

This episode is sponsored by Rithm Capital

Asset-based finance is rapidly evolving within the world of private credit, offering investors a differentiated source of risk-adjusted returns. With the market valued at over $20 trillion, it underscores the vast scale and growing importance of this segment as investors seek alternative opportunities amid shifting economic conditions.

In this episode, we speak to Michael Nierenberg, CEO of Rithm Capital, to discuss why asset-based finance is becoming more popular with investors. We analyse the opportunities ABF brings, while also exploring how managers are differentiating themselves in a competitive market.