CA Italia sets record tight with first Italian green covered bond

Crédit Agricole Italia sold the first Italian green covered bond on Monday, a €500m 12 year deal that achieved the tightest pricing of any Italian covered bond, and its head of financial management said the debut delivered on the French group’s ESG strategy and commitment to investors.

The new issue is the first green covered bond from Italy and with its debut issue Crédit Agricole Italia (CA Italia) joins other members of the French group in entering the green bond market.

“Crédit Agricole group has an integrated approach to ESG in terms of its products and policies,” Stefano Marlat, head of financial management at Crédit Agricole Italia, told Sustainabonds, “and the three pillars of its medium term plan are concerned with this.

“As the group’s Italian covered bond issuer, entering the green bond market with this instrument was therefore the right thing to do.”

He said the inaugural issue was the culmination of some 18 months of work that involved tackling similar challenges to those faced by other financial institutions preparing green covered bonds with residential mortgages as use of proceeds.

“Our main issue was updating our information systems to have data about the energy class of the buildings available,” said Marlat.

The issuer (formerly Cariparma) worked with Italian real estate specialist CRIF to develop criteria to identify properties that are among the 15% most energy efficient in its national market – a widely-used standard in line with Climate Bonds Initiative certification. The two criteria are that properties either have energy performance certificates (EPCs) A, B or C – which constitute 13.1% of Italy’s housing stock – or were built under construction standards that have applied since 1 January 2016 onwards, whereby 98.3% of buildings are equal to or better than EPC C, with a 2.5% haircut applied to mortgages identified under this criterion.

“By issuing the contemplated green covered bonds to refinance residential green buildings,” said second party opinion provider Vigeo-Eiris, “the issuer coherently aligns with its sustainability strategy and commitments, and addresses some of the main issues of the sector in terms of environmental responsibility.”

CA Italia then ensured that its framework was aligned with the Crédit Agricole group framework, under which Crédit Agricole CIB (CACIB), Crédit Agricole SA and Crédit Agricole Home Loan SFH have issued – the latter with a €1.25bn 10 year debut green covered bond in November 2019.

“A significant part of the investor calls were dedicated to the green structuring elements of the transaction,” said Antoine Rose, director, sustainable banking, CACIB. “We highlighted the work CA Italia has done with CIRF to be able to define specific local eligibility criteria aligned with the ambitions of the Crédit Agricole green bond framework.

“We also structured this transaction following the same principles we applied for the other group issuers, and all the allocation and impact reporting will be embedded in the same group communications. That’s one of the specificities of our approach, to maintain a high level of coherence between all the group issuers.”

Following these preparations, the issuer then contemplated its funding needs, according to Marlat.

“We were ready a couple of months ago,” he said, “but we analysed the developments in ECB policy to consider whether we should or could review our funding plan and go to the market or not. Meanwhile, we had a lot of positive feedback from investors regarding the green format, and also saw the first green BTP and a lot of green bonds from issuers in other formats.

“In the end, we had promised our investors to be present in the market on a frequent basis, so decided to proceed. It was also attractive to be the first Italian issuer of a green bond, if you bear in mind that we have also been the first Italian issuer in an ultra-long maturity and the first to issue in dual-tranche format.”

CA Italia sold a €750m 25 year OBG as part of a dual-tranche issue in January 2020, and its first dual-tranche trade was in October 2016. The issuer has meanwhile become the Italian issuer with the largest outstandings, its latest issue taking its benchmark OBG stock to €8.75bn.

After announcing the mandate for the new issue on Friday and holding investor calls, leads Crédit Agricole CIB (sole structuring advisor and global coordinator), IMI-Intesa, Natixis, UniCredit and RBI priced the €500m no-grow 12 year obbligazioni bancarie garantite (OBGs) at 9bp over mid-swaps yesterday on the back of over €750m of demand, following guidance of the 10bp area.

“We also realised that we have now become the first to issue with a single-digit spread,” said Marlat.

At its spread of 9bp over mid-swaps, the €500m 12 year transaction is the tightest ever Italian euro benchmark.

The limited, €500m no-grow size of the new issue was cited as contributing to the tight level, and Vincent Hoarau, head of FIG syndicate at CACIB, noted that this reflected the favourable liquidity situation and consequent lack of need for CA Italia to approach the market, and meant the limited oversubscription that was highlighted by some bankers away from the deal was of no concern.

“The issuer decided to pull the trigger in green format because they had promised investors that they would approach the market on a regular basis,” he said. “This was also in line with the group strategy, while in terms of all-in funding cost there was little upside in waiting, but this means that pricing was then the primary consideration, rather than size. That set the tone for the transaction and why we were able to achieve a really nice result in the single-digits.

“Bear in mind that we had BPCE with two tranches on the same day with pricing implying that fair value in 12 years would be around 2bp,” he added, “so the reality is that CA Italia came just 7bp back from a prime French issuer’s curve.”

According to Hoarau, the green nature of the deal attracted good participation from ESG investors and improved the granularity of the orderbook. Italian accounts were allocated 53.0% of the issue, Germany and Austria 25.2%, France 9.0%, Nordics 7.0%, the UK and Ireland 2.3%, and others 3.5%. Banks and private banks took 47.9%, funds 26.0%, and official institutions 26.1%.

ABN AMRO