AIB Group sold Ireland's first green bank bond on Wednesday, pulling in more than €2.1bn of orders for a €1bn Tier 2 transaction and easing any lingering concerns about the primary market's health after a rocky start to the week.
The subordinated deal is the first euro bank bond since a bout of equity market turbulence fed through into the credit market on Monday, prompting issuers to put planned deals on hold.
"On Tuesday the market was more sideways, but today credit indices are grinding tighter and the tone feels more supportive," said a syndicate banker away from the deal.
"Issuers did the right thing in waiting for stability."
A DCM banker on the deal said the leads had positive discussions with investors about their cash balances and ability to participate in the primary market.
After a positive open on Wednesday they were confident the deal's green element and its high spread and yield would garner a good reception, he said.
"It's gone fantastically well as all those things played out and there was a lot of momentum through the bookbuilding," he said.
Leads Citigroup, Davy, HSBC, ING, JP Morgan and Morgan Stanley opened books for the May 2031 non-call May 2026 transaction with initial price thoughts of mid-swaps plus 360bp area.
Guidance was subsequently set at 335bp/340bp for a maximum €1bn size, with books above €2.5bn, before a €1bn deal was launched at 330bp. The final book stood above €2.1bn.
Bankers said the new issue offered a concession of around 5bp over AIB's non-green Tier 2 curve, extrapolating from the bank's 1.875% November 2029 non-call November 2024 Tier 2s, which were bid at around 310bp at Wednesday's open.
Additional demand from ESG-focused accounts helped AIB price with a relatively small concession in spite of the recent volatility, bankers said.
A second banker at one of the leads said the deal provided further evidence that the pricing benefit enjoyed by green bonds is not limited to smaller, €500m no-grow deals, which until recently had been the norm in the sector.
"Now we're also seeing €1bn-sized euro transactions being very well supported by the combination of credit and green investors, with issuers still being able to achieve very attractive pricing," he said.
Bankers said other issuers that have been monitoring the market could take confidence from the success of AIB's deal.
"It proves investors still want to put their cash to work," said a second syndicate banker.
A YEAR IN THE MAKING
The deal is the first green bond issued by an Irish bank and inaugurates a green bond framework published by AIB exactly one year ago. The bank has since updated the framework to align it with the EU's sustainable finance taxonomy.
Proceeds of the green bonds will be used to finance assets in AIB's €1.7bn green loan portfolio, currently filled with loans relating to green commercial buildings and renewable energy projects and concentrated in Ireland and the UK.
The framework also allows for the inclusion of green residential buildings.
The deal is only the second green Tier 2 issued by a bank in Europe, excluding Turkey. The Netherlands' de Volksbank sold the first, a €500m deal in July.
AIB opted for green Tier 2 over the much more established green senior unsecured format because it is focussed on optimising its capital structure. All its public deals over the last year have been in subordinated format.
Prior to the new issue, AIB was €275m short of its optimal Tier 2 ratio, including Pillar 2 Requirements. But it also has a €750m 4.125% Tier 2 coming up for call on November 26.
Thanks to the new €1bn issue, AIB will be left with an optimal level of Tier 2 if the 4.125% deal is called.
AIB's domestic rival Bank of Ireland is also set to join the green bond market having unveiled a frameworkin early September.