General Motors rolled out its US$2.25bn inaugural green bond on Thursday, joining the line of carmakers like Honda and Ford that have used the instrument to finance their transition to electric vehicles.
The new green bond offering will aid the Detroit-based company's plans to have the capacity to build one million electric vehicles every year in North America by the end of 2025.
"As to why you didn't see it earlier, GM did not have a vision for EVs as they do now," said Tony Trzcinka, portfolio manager at Impax Asset Management.
"Spending another US$35bn between 2020 and 2025 on EVs shows GM has committed to this transition, and green bonds are a way of financing it," he said, referring to the company's spending pledge on electric and self-driving vehicles outlined last year.
Sustainability agents BNP Paribas and Credit Agricole held investor calls on Wednesday and Thursday. Barclays, BofA Securities, Citigroup, Goldman Sachs, JP Morgan and Morgan Stanley were the other leads on the two-part sale of senior unsecured green bonds.
Bookrunners set the US$1bn seven-year and the US$1.25bn 10-year at Treasuries plus 270bp and 295bp, respectively, tightening 25bp each from price thoughts. The offering drew US$7.2bn demand, with US$4bn of orders coming in for the longer 10-year portion, according to buyside sources.
At pricing, those levels represented new-issue concessions of roughly 15bp-20bp and 35bp-40bp, according to CreditSights. But their analysts said they had to calculate the concessions off GM's financing arm and not the parent car company, which did not have comparable maturities.
CreditSights also noted that GM's existing bonds were trading cheap to its rating of Baa3/BBB/BBB-, with GM Financial's seven-year trading 57bp wider to the average Triple B issuer.
“Autos trade at wider spreads because they’re cyclical, macro plays. But GM has stated its financial policies and its commitment to investment-grade. Plus, it has lots of cash and liquidity," said Trzcinka, who put in a bid for the offering.
General Motors had US$16.7bn of cash as of June, according to a corporate filing.
Other carmakers have made use of the ESG bond structure over the past 12 months as part of broader efforts to limit greenhouse gas emissions. Ford had issued a US$2.5bn green bond in November, a record at the time, only to be topped by a US$2.75bn trade from Honda in the same format in March.
Making the transition
Moody's provided the second-party opinion on the 2022 sustainability finance framework that backs the new bonds.
The framework would "unlock options to help us align our balance sheet with our ESG strategy," the Detroit-based company said on Tuesday's second-quarter earnings call.
Though the expansive framework covered potential projects such as providing opportunities for minority-owned businesses, the offering will exclusively finance projects around clean transportation that include investments in the design and manufacturing of electric vehicles. The look-back period for the proceeds is 24 months.
At its investor day on October 2021, GM announced a commitment to produce US$90bn of annual revenues from electric vehicles by 2030.
GM said on Tuesday it had secured supplier agreements with LG Chem, Livent and others for battery raw materials. Higher raw material costs for batteries and supply-chain disruptions have been a key bottleneck for the broader industry's electrification efforts.
Updated story: Added pricing details and commentary