Prudential prices inaugural US insurance green bond

4 min read
Americas, EMEA
William Hoffman

Life insurer Prudential Financial came to the US high-grade market on Thursday to price a US$1.5bn three-part bond, which included the first green issuance from a US insurance 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 and Swiss Re in addition to Canada's Manulife have issued them in the past, according to a CreditSights report.


Prudential will use the funds to finance or invest in projects that adhere to seven eligible green criteria, including renewable energy, green buildings and energy efficiency, according to a Sustainalytics 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 investor even assigned it the firm's highest 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 shortcomings would not meet our [highest] 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 be cautioned that the filing states "neither 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 refinance debt maturing through 2021, including the US$1.15bn of unsecured notes coming due this year.