Washington, DC, October 7, 2015 – To further incentivize climate change mitigation, the World Bank (International Bank for Reconstruction and Development, IBRD) has issued the first Pilot Auction Facility Emission Reductions Notes (PAFERNs). The notes were issued to the winning bidders in the first auction of the Pilot Auction Facility (PAF).
PAFERNs pay bondholders a guaranteed price of US $2.40 per ton of eligible certified emission reductions that are delivered at maturity. The price was determined by the PAF auction on July 15, 2015. The notes were issued in a series of five tranches, with one tranche maturing each of the next five years.
The PAF is a new and innovative way to finance projects that reduce methane gas emissions by allocating carbon credit price guarantees to the winning bidders. The first auction focused on methane-reduction projects at landfills, agriculture and wastewater sites. Most of the eligible projects are in Brazil, India, Indonesia, Malaysia, Mexico and Thailand, managed by both large and small companies. The PAFERNs were allocated on a primary basis based on the results of the PAF auction and will be freely tradable in the secondary market, thereby ensuring that the price guarantee will end up with bondholders that value it the most.
“The PAFERNs are a perfect illustration of how innovative finance can provide solutions to development challenges. The World Bank Treasury is pleased to have had the opportunity to collaborate with the carbon finance team as well as the legal department, other groups at the World Bank, and external counterparties to develop this first of its kind, carbon emission-linked structured note,” said Arunma Oteh, Vice President and Treasurer of the World Bank.
“Climate change is an important focus area at the World Bank Group, and the Pilot Auction Facility is an example of the innovative structures we are developing to support projects that help with its mitigation. We are especially pleased to have partnered with our colleagues in the World Bank Treasury to use market-based capital markets solutions to deliver this floor price guarantee in a way that is accessible to more companies and allows tradability in a secondary market,” said Vikram Widge, Head of Climate and Carbon Finance at the World Bank Group.
“We looked at a number of possible structures to supply this price guarantee to the market, from bilateral option contracts to exchange traded options. Ultimately, we determined that embedding the price guarantee in a bond – a freely tradable capital market instrument – would maximize the benefits of the guarantee,” said Michael Bennett, Head of Derivatives and Structured Finance at the World Bank.
“Citi is highly committed to supporting innovative solutions leading to sustainable growth and we are pleased to have contributed to this milestone program in our capacity of global agent for the World Bank,” Dirk Jones, Head of Global Issuer Services at Citi, said. “In structuring an adaptable financial instrument that supports environmental-friendly projects, the World Bank paves the way for new approaches to financing climate change mitigation. We look forward to leveraging our distribution network and expertise to further facilitate environmental programs that benefit people and communities.”
Summary Terms for the PAFERNs (PAF Emission Reduction Notes):
World Bank (International Bank for Reconstruction and Development, IBRD)
US$20.9 million (aggregate)
Five tranches; maturing in 2016, 2017, 2018, 2019 and 2020
October 7, 2015
US$2.40 per eligible certified emission reductions delivered at maturity
Global Agent, Registrar and Settlement Agent and Calculation Agent:
KommunalKredit Public Consulting GmbH
Legal Adviser to Issuer:
Linklaters LLP, London and New York
Custodian Services for Investors:
BNP Paribas and Citi
About the World Bank
The World Bank (International Bank for Reconstruction and Development, IBRD), rated Aaa/AAA (Moody’s/S&P), is an international organization created in 1944. It operates as a global development cooperative owned by 188 nations. It provides its members with financing, expertise and coordination services so they can achieve equitable and sustainable economic growth in their national economies and find effective solutions to pressing regional and global economic and environmental problems. The World Bank Group has two main goals: to end extreme poverty and promote shared prosperity. The World Bank (IBRD) seeks to achieve them primarily by providing loans, risk management products, and expertise on development-related disciplines to its borrowing member government clients in middle-income countries and other creditworthy countries, and by coordinating responses to regional and global challenges. The World Bank has been issuing bonds in the international capital markets for over 60 years to fund its sustainable development activities and achieve a positive impact. Information on bonds for investors is available on the World Bank Treasury website: www.worldbank.org/debtsecurities.