Verizon gets explicit on banks’ ESG credentials

IFR 2400 - 11 Sep 2021 - 17 Sep 2021
6 min read
Americas, EMEA
Timothy Sifert

Verizon Communications, the second biggest US telco by revenue, has become one of the first issuers to add sustainability and diversity guidelines for investment banks into its green bond framework.

The New York-based phone company this month priced a US$1bn 20-year green bond through diversity and inclusion banks Loop Capital Markets, Ramirez, Siebert Williams Shank as well as bulge-bracket Morgan Stanley.

Verizon has used D&I banks on offerings in the green format before. On its latest one, however, it was the first time its green financing framework explicitly spelled out what sustainability and diversity criteria its underwriters need to have to work with Verizon.

“One of the things Verizon did with this deal is we made a hard link between the green bond and the diversity and sustainability commitments of the underwriters,” said Scott Krohn, Verizon’s treasurer. “We hardwired that in the green bond framework for this deal and the future.”

Frameworks for green, social and sustainable debt offerings typically articulate an issuer’s intended uses of proceeds for future ESG financings. Second-party opinion providers evaluate them, and they also allow market participants to get acquainted with a borrower’s goals ahead of deal-specific prospectuses.

Any preference for certain types of bond underwriters may be implied in a framework, though rarely spelled out.

“It’s easy for us to say to our banking partners now, ‘If you don’t prioritise sustainability and diversity, you’re not going to be working with Verizon,’” Krohn said.

Spelled out

For an underwriter to be eligible for selection by Verizon, according to the framework, it has to meet at least one of the following criteria: it must show a “clear and impactful” commitment to the United Nations’ sustainable development goals, must be “diverse-owned”, and/or have a core mission promoting “diversity, equity and inclusion”.

“On this trade and trades going forward, you will see how we are now scrutinising our underwriting partners for their own diversity and sustainability commitments,” Krohn said.

All of this sends a clear message in part because Baa1/BBB+/A– rated Verizon is a big bond issuer – and fee payer. In fact, it holds the record for the largest corporate bond transaction ever, its US$49bn offering from 2013.

The telco has also doled out about US$20m in fees to minority and women-owned firms this year, it said when it announced the new green bond. The figure includes US$4.5m for the latest offering and more than US$14m in fees from a US$25bn deal in March.

That jumbo financing earlier this year, used to help fund its US$45bn purchase of spectrum, comprised nine tranches and enlisted 29 banks. Those included global coordinators JP Morgan and Morgan Stanley as well as Loop, Ramirez, Siebert and veteran-owned Academy Securities, among others in the D&I sector, an SEC filing showed.

Providing the bond economics to a more diverse group of banks is only part of it, Krohn said.

“We’ve been very clear not only on our renewable energy goals, but in our desire to provide meaningful opportunity and economics to diversity and inclusion firms,” he said. “It’s not just cutting a check. It’s setting them up for success for their franchise and distribution.”


While there may not yet be a wide trend towards incorporating underwriter criteria into debt offering frameworks, bond market opportunities for D&I firms are increasing.

Borrowers including PepsiCo, Duke Energy, General Electric and Toyota Motor Credit have been actively using D&I firms on their trades for years, while others are increasing their focus in the under-served part of the investment banking sector. Insurance company Allstate, for instance, last year priced the first benchmark-sized bond to be managed entirely by D&I banks.

Deutsche Bank this year used six joint lead managers and five co-managers, all owned and led by management teams that are female, minorities or have service-disabled veteran backgrounds, for a US$750m US high-grade bond deal. The German bank said it wanted to help showcase and be a springboard for the D&I firms' capabilities.

“We’re seeing a significant uptick in more senior roles and opportunities for firms like ours especially over the last 12 months,” said Sam Ramirez, senior managing director at Ramirez & Co. “We expect this to accelerate in 2021 and 2022.”

Market participants say that having more D&I firms in a syndicate can pay off in several ways. And one of the more important benefits of using different bond underwriters is that it allows issuers to reach a greater variety of money managers.

“They have their own unique accounts,” said Verizon’s Krohn. “There are many proprietary investors that work exclusively with D&I firms in addition to large asset managers also having similar diversity preferences to expand and enhance their own business with D&I firms.”

No sacrifice

Ramirez agreed that hiring firms like his achieves several goals.

“The issuers make a statement on the importance of diversity to the organisation by working with firms like us that have a demonstrated track record,” he said. “They also increase the amount of investor participation from accounts that have relationships with diverse bookrunners like us.”

Trades that have employed D&I firms have also performed well – and Verizon’s was no exception.

The US$1bn deal, where proceeds are earmarked for renewable energy, drew a lot of interest from green bond funds as well as investors with wider mandates. Early demand for the notes allowed lead banks to tighten pricing from initial price thoughts of the 125bp area over Treasuries to guidance of 105bp (plus or minus 3bp) and then price at 102bp – well inside where the company's existing 3.4% 2041 notes were last week.

“At the end of the day,” Ramirez said, “I think issuers have realised that they won’t sacrifice execution.”

Additional reporting by David Bell