a differentiation in how they are valued,”
said Bruzzo.
“Syndicate desks are getting feedback
from investors on the best way to bring a
mOATER vûEITHERûLINKEDûTOû3/&2ûORû,IBORûWITHû
fall-back language.PRUDENTIAL PRICES INAUGURAL US
INSURANCE GREEN BONDLife insurer PRUDENTIAL FINANCIAL came to the
US high-grade market on Thursday to price
a US$1.5bn three-part bond, which included
THEûlRSTûGREENûISSUANCEûFROMûAû53ûINSURANCEû
company.
Issuers outside of the energy and utility
space are increasingly adding to the supply
of green bonds, and Prudential’s US$500m
six-year was the latest following on from the
likes of Starbucks, Verizon and PepsiCo last
year.
“This strong momentum in support of
climate transition adds weight to our view
that the green bond market is approaching
a turning point for investors,” said Joshua
Kendall, senior ESG analyst at Insight
Investment.
“We expect 2020 to be another record
year for green bonds, with early indications
suggesting a total close to US$300bn in
issuance.
Prudential priced the green bond at 90bp
over Treasuries, as well as two US$500m
non-green tranches in 10 and 20-year
maturities at 120bp and 145bp over,
respectively.
Bookrunners Bank of America, BNP Paribas,
Deutsche Bank, HSBC and Morgan Stanley
tightened spreads 30bp through price
progression.
However, the bonds did not perform well
on the break as equities took a pounding
and credit spreads followed in sympathy.
Prudential’s bonds were trading as much
as 15bp wide on the break, according to
MarketAxess data. The green bond held up
the best of the three tranches but was still
10bp wide of its pricing level, at 100bp over
Treasuries.
The green bond tag did not seem to help
Prudential achieve a lower spread, however.
It came with a new issue concession of
around 3bp, when accounting for the
maturity extension over the company’s
outstanding 3.5% 2024 note that was trading
at around a G-spread of 72bp, according to
IFR calculations and MarketAxess data.
But the green designation did appear to
help attract a diverse investor base.
The total book size built to US$4bn, with
the most demand concentrated in the green
bond, which garnered US$1.7bn in orders.
A lack of insurance company green bonds
worldwide may have helped drive demand.
Only European insurers Generali, CNP andSwiss Re in addition to Canada’s Manulife
have issued them in the past, according to a
CreditSights report.USE OF PROCEEDS
0RUDENTIALûWILLûUSEûTHEûFUNDSûTOûlNANCEûORû
invest in projects that adhere to seven
eligible green criteria, including renewable
energy, green buildings and energy
EFlCIENCY ûACCORDINGûTOûAû3USTAINALYTICSû
report from February.
The US$500m in funds dedicated to green
projects will represent a drop in the bucket
of Prudential’s US$1.3trn in assets under
management.
Still, Insight Investments rated the level
of disclosures highly in this bond. The
INVESTORûEVENûASSIGNEDûITûTHEûlRMSûHIGHESTû
status for green bond frameworks, which it
only gave to 27% of the more than 120
impact bonds reviewed last year.
“By our standards, the market still
struggles with transparency reporting and a
clear demonstration of positive impact,”
Kendall said.
“Issuance with these kinds of
SHORTCOMINGSûWOULDûNOTûMEETûOURû;HIGHEST=û
status.”
However, CreditSights noted it is unclear
if Prudential will distribute the funds to
PGIM for third party asset management or
whether they will go to the company’s
general account.
More stringent buyers of green bonds may
BEûCAUTIONEDûTHATûTHEûlLINGûSTATESûhNEITHERû
the notes nor the indenture requires
Prudential Financial to use the proceeds as
described... and any failure of Prudential
Financial to comply with the foregoing or its
obligations under its Green Bond
Framework will not constitute a breach of or
default under the notes”, CreditSights
pointed out.
Proceeds from the two non-green
tranches are expected to be used to
RElNANCEûDEBTûMATURINGûTHROUGHû û
including the US1.15bn of unsecured notes
coming due this year.MID-SIZED BANKS LOBBY FOR SECOND
LIBOR REPLACEMENT BENCHMARKMid-sized banks are pushing back against
THEû&EDERALû2ESERVESûONE
SIZE
lTS
ALLû
solution to the transition away from Libor
and asking for regulatory support for an
alternative.
In a letter addressed to regulators at the
end of February, 10 banks spoke out in
favour of an alternative reference rate called
the American Interbank Offered Rate
(Ameribor), saying that the Federal Reserve’s
preferred Secured Overnight Financing Rate
causes an asset-liability mismatch in their
part of the banking sector.Chief executives at ARVEST BANK, ASSOCIATED
BANC, BROOKLINE BANCORP, FLAGSTAR BANCORP,
FIRST MERCHANTS, CULLEN/FROST BANKERS, OLD
NATIONAL BANCORP, PACWEST BANCORP, SERVISFIRST
BANCSHARES and SIGNATURE BANK addressed the
letter to the Fed, the Comptroller of the
Currency and the Federal Deposit Insurance
Corporation on February 26.
The banks argued that SOFR is a good
alternative for large investment banks that
hold many secured government Treasury
notes.
But mid-sized regionals mostly hold
unsecured assets, and linking bonds and
loans to the secured transactions that SOFR
TRACKSûASûAûBENCHMARKûISûNOTûREmECTIVEûOFû
their business.
“That presents an immediate asset-
liability imbalance and potentially creates
DISTORTIONSûINûTIMESûOFûlNANCIALûSTRESS vûTHEû
banks wrote in the letter.
h$URINGûAûlNANCIALûCRISIS ûOVERNIGHTû
liquidity becomes a priority and the value of
collateral would rise, leading to increased
borrowing costs for banks irrespective of
their asset size and affecting credit
availability.”
To help solve this problem the banks are
backing the American Financial Exchange’s
Ameribor alternative reference rate.
More than 175 AFX member banks back
the rate, representing US$2.2trn in assets, or
12% of the US banking sector, according to
the letter.
Daily volumes on AFX average US$2bn,
while SOFR averages some US$800bn in
Treasury and repo market transactions,
according to the New York Federal Reserve.
West Coast-based MUFG UNION BANK has
been the only US regional bank to issue
bonds referencing SOFR. It priced a
53MûTHREE
YEARûmOATERûATûBPûOVERû
SOFR in December.
But most regional banks have stuck to Libor.
For example, PNC BANK priced a US$1bn
three-year non-call two FRN that was priced
at three-month Libor plus 32.5bp last
MONTHû4HEûlRSTûCALLûDATEûANDûlNALûMATURITYû
come after the December 2021 Libor
transition deadline.
“We support the transition away from
Libor, but as mid-sized institutions, we
caution against a single benchmark,” the
banks wrote in the letter.
“Given its unsecured nature, Ameribor is
gaining greater traction and we encourage
other banks to take note.”EUROS
LLOYDS SEEKS SUB DEBT SWITCHLLOYDS BANK is launching a par-for-par
exchange offer seeking to swap its legacy34 International Financing Review March 7 20206 IFR Bonds 2323 p 25 - 53 .indd 34 06 / 03 / 2020 19 : 18 : 07