Deutsche Bank lands debut US dollar green bond
Deutsche Bank set its sights on the short end on Tuesday as it raised US$800m with its first US dollar green bond to fund investments and loans to companies and assets in renewable energy, energy efficiency projects and green commercial real estate.
The German bank became the latest to tap into into increasing demand for environmental, social and governance focused investment with a US dollar green bond.
The five-year senior preferred bullet note also targeted increased demand for shorter dated bank paper in light of the recent moves in Treasury markets, which steepened the yield curve and caused some indigestion of late in the primary market.
"Five-year bank paper is holding up very well because the front end is very steep, thanks to the Fed," said Scott Kimball, co-head of fixed income at BMO Global Asset Management.
The self-led deal was boosted from an initial US$500m, with pricing tightened from initial price thoughts of 110bp over Treasuries, to guidance of 90bp area and then a final level of 87bp.
"As rates are moving up, people have shifted into the short end for bank paper," said Adam Coons, portfolio manager at Winthrop Capital Management, adding that short end spreads have compressed most significantly in the US domestic money center banks, but names such as Deutsche Bank or Santander offer some pick-up.
"There's not much more you can get from that trade; If you're willing to take on the risk you can move into lower tier banks," Coons said. "We're comfortable with Deutsche Bank on the short end, but are definitely cautious on anything outside five-years."
The A3/BBB+/BBB+ rated notes will be used to finance eligible green projects that meet Deutsche Bank's green financing framework. These include lending to the wind, solar or biomass energy sectors, energy efficient projects such as smart grid meters or LED lighting, and green commercial real estate. The bank has set a target of financing €200bn of sustainable projects by 2025.
“They are being opportunistic, but they are also doing a fair amount that’s industry leading. They did a pretty good job to convince us that they are exceeding their industry peers in this area,” a senior portfolio manager said.