Green SNP and HoldCo debuts outdo conventionals

BBVA and KBC sold green senior non-preferred and green HoldCo debuts in May and June, respectively, after BNP Paribas in April issued the first green senior non-preferred bond, with the success of the three deals deemed increasing evidence that green bonds carry demand and pricing benefits.

Other banking groups had previously sold green bonds in HoldCo format contributing towards TLAC and MREL buffers, but BNP Paribas’ was the first green bond within a specific senior non-preferred framework.

And while new issue premiums have in general been elevated this year amid more challenging market conditions, all three banks’ choice of green bonds for their SNP/HoldCo issuance was deemed to have contributed to impressively tight pricing on the back of high levels of oversubscription.

Most recently KBC achieved a more than thrice-subscribed book for a EUR500m green HoldCo debut on 20 June, despite being priced with a substantially smaller premium than recent conventional supply in choppy markets.

Following the completion of a European roadshow presenting the Belgian group’s new green bond framework, KBC Group NV’s EUR500m no-grow deal was launched with initial price thoughts of the low 80s over mid-swaps area. Guidance was later set at the 75bp area, plus or minus 3bp will price within range, with books over EUR1.4bn. The spread was subsequently set at 72bp.

The final book stood at EUR1.7bn, including 131 investors. Green accounts were allocated 71% of the deal.

Fund managers took 63%, insurance companies and pension funds 19%, central banks and official institutions 12%, banks and private banks 5%, and others 1%. Accounts in France were allocated 34%, the UK and Ireland 20%, the Benelux 19%, Germany, Austria and Switzerland 13%, the Nordics 9%, Southern Europe 4%, and others 1%.

“We are very happy with the outcome,” said Enzo Soi, funding manager at KBC. “We have a deal that was more than three times oversubscribed, which is a good success given that the market was quite volatile at the beginning of the week, with the tariff tensions between the US and China.

“Once the markets went green again on Wednesday, especially the stock markets but also the credit indices, we decided to go ahead with the transaction and the deal went smoothly. Even when we tightened the spread investors stayed in, showing they are happy with our credit and with our green framework.”

Soi said demand for the deal was larger than KBC would probably have attracted with a conventional senior HoldCo issue. He said this could be attributed to the green element and also potentially to the deal’s limited size.

“But I think there was definitely some green benefit for the issuer, especially as the market was volatile in the previous days,” he said.

George Kalbin, director, FI syndicate at Crédit Agricole CIB — joint green bond structuring advisor and joint bookrunner — said the “stellar” deal showed the advantages of having a green element to a transaction in volatile markets.

“KBC is a very good name, but it’s still very impressive that we saw an order book of above EUR1.6bn staying sticky all the way down to 72bp,” he added.

The deal was deemed to have paid a new issue premium of around 3bp based on KBC’s conventional senior HoldCo curve, with syndicate bankers seeing KBC March 2022s at 60bp, mid, and October 2023s at 71bp. Kalbin noted that in recent weeks, new issue premiums for non-green deals in the senior unsecured market have averaged around 10bp.

“We haven’t seen a concession as low as 3bp for some time in this market,” he said. “The five year is a slightly defensive maturity, but I think very few investors would consider the senior non-preferred product defensive given their volatility when it comes to price.

“It’s an astonishing success that we were able to achieve a minimal concession, which shows green investors acknowledged the high quality of the KBC green bond framework.”

The new issue was the first green bond from a Belgian bank.

“This is the logical link we wanted to establish between green funding and our sustainability policy and the assets that we are generating thereunder,” said Soi. “We are in this way giving extra financing power to our clients to engage in green projects, and that is the objective of this green framework.”

KBC was also interested in joining the green bond market because of the potential investor diversification benefits it offers, he added.

“The market is becoming ripe for issuance,” said Soi.

Green bonds can be issued under the framework via KBC Group NV, KBC Bank NV, or any of its other subsidiaries. The framework is intended to allow for secured and unsecured green issuance in various formats and currencies. Soi indicated that any green covered bonds KBC may issue in future would be linked to green residential loans in its cover pool.

KBC may consider issuing at least one green bond per year, said Soi, adding that the choice of format will depend on the group’s funding needs.

BBVA debut thrives, sets record

BBVA’s EUR1bn seven year senior non-preferred deal on 3 May was the largest green bond from a Eurozone bank and the first green senior non-preferred from Spain. It inaugurated a Sustainable Development Goals (SDGs) Bond Framework whereby the uses of proceeds are mapped to various SDGs.

“We are committed to sustainable finance, and this issue is yet another example,” said BBVA CEO Carlos Torres Vila.

The seven year issue was launched with initial price thoughts of the mid-swaps plus 95bp area. After just over one hour and 20 minutes, the leads announced that books had surpassed EUR1bn.

Guidance was subsequently set at the 80bp-85bp area, will price within range, with books in excess of EUR2.3bn. The spread was then fixed at 80bp and the size at EUR1bn with books over EUR2.8bn, pre-reconciliation. The final book stood at over EUR2.5bn good at re-offer, with more than 200 orders.

Syndicate bankers described the result as being particularly impressive given market conditions, noting that heavy supply of TLAC/MREL-eligible debt in the first quarter had led to investor selectiveness, rising premiums and spread widening.

“I think this deal went incredibly well,” said Kalbin at joint bookrunner CACIB, “especially against a softer backdrop and given this is a peripheral issuer — albeit a national champion — opening the market after a slow period, with the senior unsecured asset class still only half recovered from a hangover on the back of the surge of supply we saw pre-Easter.

“In the end it was really well received by the wider investor community.”

Just over half, 51%, of the bond was allocated to SRI investors. Fund managers took 77%, insurance companies and pension fund 18%, banks 9%, and others the balance. French accounts were allocated 40%, Germany and Austria 17%, the Nordics 11%, the Benelux 8%, and the UK and Ireland 8%.

Kalbin said interest in the trade was high given that it is the first green senior non-preferred (SNP) deal from Spain.

“I think this is going to be the first in a long series of green SNP issuances to come,” he added. “We definitely saw very strong interest from dedicated SRI investors.”

The bank said that the choice of a senior non-preferred issue to inaugurate its programme surprised investors more used to green bonds coming in senior preferred format or as mortgage-backed securities (MBS).

Kalbin added that demand was also supported by the relative scarcity of BBVA issuance and its status as a national champion. The bank had previously announced plans to print EUR2.5bn-EUR3.5bn of senior non-preferred debt this year and had printed EUR1.5bn of this prior to the new issue.

Syndicate bankers at the leads said the deal was priced with no new issue premium, seeing Santander 2024s — a conventional senior non-preferred bond — trading at 77bp-78bp, bid, and noting that BBVA is lower rated than Santander. BBVA’s deal is expected to be rated Baa3/BBB+/A- (Moody’s/S&P/Fitch), while Santander’s senior non-preferred issuance is rated Baa2/BBB+/A-.

“We haven’t seen many 15bp pricing moves in recent months,” added a syndicate banker away from the leads.

BNP Paribas first hits the spot

BNP Paribas got the green senior non-preferred ball rolling on 10 April. Its six year deal was launched with initial price thoughts of the 65bp over mid-swaps area. Guidance was then set at 55bp-60bp, will price within range, with books over EUR1bn, before the spread was fixed at 55bp for a size of EUR500m, with final books at around EUR1.1.bn. The size was later fixed at EUR500m.

Syndicate bankers at and away from the leads said the deal offered as little as 3bp of new issue premium, based on the issuer’s senior curve, which was deemed notably small for a senior transaction, especially when compared to the premiums being paid on the same day for secured bonds in the form of non-green covered bonds for HSBC, Erste and Axa Bank Europe.

Syndicate bankers attributed the relatively strong demand for BNP Paribas’ deal to its intermediate maturity, which they noted was more popular among investors in the prevailing difficult market environment, and its more attractive absolute spread.

“With the green factor and the six year maturity, this deal was pushing all the right buttons,” said a syndicate banker away from the leads.