Berlin Hyp sold the first green covered bond today (Monday), attracting almost Eu2bn of orders for a Eu500m seven year issue, with bankers suggesting the deal printed in line with where a conventional Pfandbrief would have priced while attracting new investors to the paper.
Launched this morning following a European roadshow that concluded on Friday, the inaugural Grüner Pfandbrief is backed by commercial real estate loans that meet certain environmental and sustainability standards and has a second party opinion from oekom research.
Leads Crédit Agricole, DZ, JP Morgan, LBBW and UniCredit launched the Eu500m no-grow seven year deal with initial price thoughts of the 14bp through mid-swaps area, moving to guidance of the minus 15bp area before setting the re-offer at minus 16bp.
Bankers said the final spread was likely in line with where a conventional new Pfandbrief issue would have been priced, with Berlin Hyp April 2021 paper seen at minus 20bp, bid.
“The green element brought more investors in and increased the granularity of the book while the issuer achieved the same pricing it would have with a conventional Pfandbrief,” said a syndicate official at one of the leads.
“This deal shows there is no disadvantage for an issuer in launching a green covered bond, because all the usual suspects are in the books, too,” he added. “It is a win-win.”
According to Bodo Winkler, head of credit treasury and investor relations at Berlin Hyp, more than 70 accounts participated.
“We were totally amazed by the interest of investors,” he said. “Almost half of the orders came from investors with a clear SRI (socially responsible investment) mandate. It also included a decent number of names that had not bought Berlin Hyp senior unsecured or covered bonds in the past.”
A syndicate official away from the leads agreed that the outcome was a good result for the issuer.
“This is certainly an encouraging start for green covered bonds,” he said.
In September Münchener Hypothekenbank sold the first covered bond in the SRI field, a Eu300m five year ESG (environmental, social, governance) Pfandbrief backed by cooperative housing loans. Berlin Hyp’s issue is the first to focus on more narrowly green criteria.
A banker away from the deal agreed that the spread and level of tightening during the execution was in line with what would be expected of a normal Pfandbrief, but questioned whether the pricing meant that more issuers would follow Berlin Hyp’s lead in the current market environment.
“Does this deal convince me that green Pfandbriefe are a great idea? I’m not sure,” he said. “I think the impact of the green labelling was limited.
“This may open up a new pocket of demand in covereds that wasn’t there before for ESG or green investments, but in the current environment I’m not sure it makes sense for all issuers to pay the extra it would cost to launch green covered bonds.”
The banker conceded that green covered bonds could bring a strategic advantage for issuers, by increasing the diversity of their investor base.
However, the lead syndicate official said other issuers would be encouraged by Berlin Hyp’s success.
“This will be a slow process, but it is something that will develop,” he said. “Issuers will see this trade and it will definitely heighten their interest in ESG and green covered bonds.”
And another banker away from the deal noted the issue’s benchmark size, compared to the sub-benchmark size of MünchenerHyp’s ESG Pfandbrief.
“I think the size speaks of the growing investor base for this sort of thing,” he said. “The green investor base is growing exponentially.”