Credit Insights

Not Yet St. Patrick's Day, but Verizon Goes Green

Dave Sekera, CFA

St. Patrick's Day is still a month away, but Verizon Communications (BBB, stable) got an early start last week as it issued its first "green" bond. According to the International Capital Market Association, "Green Bonds enable capital-raising and investment for new and existing projects with environmental benefits." To be considered a green bond, the issuer commits to using the proceeds from the bond issue for projects that will enhance its climate or environmental profile. Currently, there are no governmental regulations that stipulate what a company must do to designate a bond issue as a green bond, but the ICMA has published Green Bond Principles 2018, which outlines its voluntary process guidelines for issuing green bonds. Typically, the issuer will solicit a second-party opinion to provide investors with its assessment as to the firm's adherence to the ICMA's four core components of the Green Bond Principles. In the case of this bond issuance from Verizon, the second-party opinion was provided by Sustainalytics, a leading independent provider of environmental, social, and corporate governance research, ratings, and analytics. The opinion can be found here: //www.sustainalytics.com/green-bond-second-party-opinions/

The green bond issued by Verizon was a $1 billion, 10-year note offering that was priced at a spread of +120 basis points over Treasuries. Demand for the new notes was off the charts; Bloomberg reported that the note offering was 8 times oversubscribed (meaning that there was $8 billion of orders for the $1 billion offering). This is more than double the average oversubscription level in 2018. In the secondary market, the heightened demand immediately drove the price higher to an equivalent of +118 basis points over Treasuries, and the bonds have continued to trade in that context. One bond trader said he thought the bonds were priced about 5 basis points tighter than an equivalent non-green bond would have priced for the same maturity. Before this offering, Verizon's existing 2028 notes were also trading around +120, which means that the green bonds were priced with no new issue concession and no additional spread for the curve.