Generali green insurance first boosted by sub tender

Generali became the first European insurer to issue a green bond on 23 September, a €750m 11 year Tier 2 deal launched in conjunction with a tender for €1bn-equivalent of outstanding subordinated debt, and the landmark trade attracted €3.25bn of demand from 275 accounts, allowing it to be priced some 10bp through fair value.


Announced on 16 September alongside the planned new Tier 2 issue, the tender offer targeted up to €1bn-equivalent of two euro and one sterling subordinated issues callable in 2022 totalling €2.559m-equivalent, with a view to smoothing the company’s maturity profile, reducing its debt by €250m, and cutting interest costs.

The Italian insurer also took the opportunity provided by the liability management exercise to inaugurate a new green bond framework as part of its overall sustainability strategy.

Generali is targeting €4.5bn in new green and sustainable investments over the 2018-2021 period and last year renegotiated €4bn of revolving credit lines with sustainability features linked to the achievement of its green and sustainable investment target. The green bond framework includes six categories of use of proceeds, but the proceeds of the debut are mainly earmarked for green buildings and clean transportation.

“The feedback has been very positive,” said Giulia Raffo, group head of investor and rating agency relations, Generali. “Pure credit investors have appreciated the consistency of the exercise with our group strategy, while ESG/green investors have praised the clarity of our green bond framework and the strong link between the framework and our sustainability commitments.

“Our group CFO, Cristiano Borean, launched the initiative of creating the Generali green bond framework after the November 2018 investor day. This was a very prescient vision which has been rewarded by the market.”

Read the full Q&A with Generali here.

Generali held an internet roadshow and one-on-one calls while the tender was open from 16-20 September, ahead of the new green Tier 2 issue’s launch the following Monday. Priority allocation in the new issue was available to those tendering bonds, subject to the discretion of the issuer, which also retained flexibility by not prioritising in advance any of the targeted bonds.

Ultimately €1.513bn of the targeted bonds were tendered – with participation rates ranging from 50.9% to 62.4%, for an average of around 59% – with Generali accepting €999m, allocating in full the two issues callable first, but 38.4% of the third.

The new green Tier 2 issue was launched on 23 September with initial price thoughts of the mid-swaps plus 260bp area for the October 2030 euro benchmark. Orders exceeded €2bn after two hours and guidance of the 235bp area for a €750m deal size was subsequently released. Demand ultimately reached €3.25bn, pre-reconciliation, allowing for pricing of mid-swaps plus 225bp, which the leads said was equivalent to 10bp through fair value. The coupon of 2.124% is the lowest achieved by Generali on a subordinated bond.

“This was a trade investors couldn’t afford to miss,” said André Bonnal, FI syndicate, Crédit Agricole CIB (CACIB), which was joint bookrunner, green structuring adviser, and dealer manager on the tender. “It’s a subordinated trade, green, and investors like the Generali signature, while as an Italian name it offers some pick-up versus its peers. Meanwhile, we have had substantial relief in Italian political risk.

“We launched the trade just a few days after the ECB provided a clear direction,” he added, “so in terms of market timing it made perfect sense, too.”

Noting that Generali’s deleveraging strategy will in the medium term further increase the scarcity value of the credit, the tender effect, and the attraction of the 2% coupon for the investment grade (Baa3/BBB) instrument, Matteo Fungo, DCM origination, CACIB, said the collection of such factors rather than solely the green nature of the deal contributed to the negative new issue premium.

The diversification offered by the first European insurance green bond and the time allowed for investors to analyse the framework during the tender period also played into the success of the transaction, according to Pascale Forde Maurice in CACIB’s sustainable banking team.

“Key to this transaction is its alignment with Generali’s full sustainability strategy,” she added, “in particular towards climate, where the issuer is the most advanced in terms of investment commitments in the insurance sector.”

Accounts declaring a green interest constituted a significant share of the order book, including investors new to the Generali name, some of whom participated in one-on-one calls with the issuer.

Véronique Diet Offner, in charge of liability management for EMEA and corporate hybrid structuring, DCM solutions and advisory, CACIB, said a “very significant” proportion of bondholders participating in the tender offer requested priority allocation codes, further improving the dynamic for both the tender and the new issue.

“It is understandable that in a context where investors are hunting for yield, giving them a way to get a more favourable allocation creates a real incentive for them to participate in the tender,” she added.

The confidence with which Generali could enter into the liability management exercise thanks to the strength of its offering meant that it could leave its new issue until after the completion of the tender offer so as to calibrate the size of the new issue based on the results of the offer, according to Diet Offner.

CACIB’s Bonnal noted that while Generali has provided a first, liquid reference point for European insurance companies in the green bond market, CNP Assurances is still awaited after holding off issuing before the summer.

“Generali’s issue is generating a lot of very positive noise,” he said, “so other insurers will be checking how they can replicate something of the sort.”

Photo: The Ballon de Paris Generali, which monitors air quality as well offering tourist rides; Credit: Aero4/Wikimedia Commons