Swiss Franc Bond House: Zuercher Kantonalbank

IFR Awards 2021
5 min read
Jonathan Penner

The innovator
The Swiss market is not usually known for new ideas, but 2021 saw three novel structures appear in a year dominated by domestic issuance. For its innovation and stellar performance throughout the period, Zuercher Kantonalbank is IFR's Swiss Franc Bond House of the Year.

Solid with dependable reliability is seen as the hallmark of the Swiss market, but 2021 saw a spate of innovation as it produced two world firsts in rapid succession, plus a domestic first. Zuercher Kantonalbank captured the zeitgeist of 2021 and was instrumental in all three, making for a fabulous year for the bank.

Overseas supply has been losing ground in the Swiss franc bond market – from a share of over 55% in 2010–2011, it is now down to a mere 25%. ZKB was a pivotal player in this move, with its strong focus on the domestic segment and a track record of enabling market access to new Swiss issuers.

ZKB was the most innovative bank in the market over the year, with a new Tier 2 structure in April and the world's first corporate covered bond and first regulated digital bond on its roster.

ZKB was joint lead with LuzernerKB for the latter's new 10 non-call eight-year Tier 2 bond in April. The structure was designed to be index-eligible in order to maximise investor demand by attracting institutional accounts. Avoiding a coupon reset allowed SBI index eligibility, while capital amortisation occurs in years five to seven.

The plan worked, as asset managers took a majority with 51%, while retail accounts and private banks took only 19%. Insurers and pension funds split the remaining 30% almost equally.

The A– rated deal came as a SFr400m 0.875% bond, issued at Libor mid-swaps plus 95bp, the tight end of guidance and flat to 5bp wide of the curve.

ZKB was sole arranger and bookrunner for AMAG Leasing's Triple A rated car lease-backed covered bond, the first corporate covered bond in the world. Speculation was rife ahead of the new deal as to where it would price and whether Swiss investors would accept a negative yield for such a novel concept. A 3.25-year printed with a negative 0.02% yield as investors flocked to the deal, preferring the simplicity of a covered bond to the more complex ABS structure that AMAG had previously used.

ZKB was also a joint lead on Switzerland's other world first. It was heavily involved in the development and production of SIX's fully digital regulated bonds, IFR's Swiss Franc Bond of the Year.

Almost no market would be complete in 2021 without mentioning green and sustainable bonds. ZKB has been at the forefront of pushing green and other ESG-labelled bonds with Swiss issuers. It has also been a pioneer in developing this market with four of its own deals since 2018, following Switzerland's first green bond, EIB's climate awareness bond in early 2014.

In 2021, ZKB again topped the league table for green and sustainability bonds from domestic issuers. It advised eight of them as lead manager, as well as BNP Paribas in the foreign segment, with the majority being new to the green bond market.

ZKB was sole lead manager and structuring adviser for the sustainable bond from Allgemeine Wohnbaugenossenschaft Zuerich, which marked the first offering from a social housing corporation in Switzerland. Proceeds were earmarked to finance green affordable housing in the Zurich area.

It also led green and sustainable deals from Primeo Energi, Baloise, KSW, BNP Paribas, Intershop, Swisscom and Swiss Prime Site, among others.

In-house, sustainability has been a key focus at ZKB since 1992, when it began offering environmental loans. It benefits from some of the highest ESG ratings in the industry: AA from MSCI, putting it in the top 13% of the 213 banks rated worldwide; C+ Prime from ISS ESG (top 4% of 276 banks worldwide); and B from Inrate, making it number three of the 37 Swiss banks rated.

Another segment in which ZKB has played a leading role is hospital financing. Over the past five years, it has acted as lead manager on 15 out of 20 bonds issued and become partner of choice for hospitals. In the midst of the Covid-19 challenges, which hit the sector hard, ZKB reopened the market after two years, in particular for public hospitals, and was selected as sole lead manager on five out of six transactions.

ZKB also launched the first ever green bond from a hospital in the Swiss market, Kantonsspital Winterthur's four-year, which even printed at a negative yield.

Other debuts led by ZKB included issues for Union Banque Privee, Tecan and WWZ, and SIX's first Swiss franc bond.

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