North star
Nordea accelerated its pioneering effort to create use-of-proceeds bonds from its sustainability-linked loan portfolio, while also showing exceptional commitment to greening its debt. As much as two-thirds of the benchmark bonds the bank issued in 2023 across a raft of structures and currencies were in ESG formats. Nordea is IFR’s Sustainable Issuer of the Year.
Despite the scarcity of underlying assets and the novelty of its bonds backed by sustainability-linked loans (SLLBs), Nordea raised more than €5bn-equivalent through 10 green bonds and SLLBs in six currencies over the year.
A new record for the bank’s ESG funding, this effort saw it complete the first international offering of its SLLB innovation – as well as entering as many as four markets where it had not issued uncovered green bonds before (Norwegian kroner, sterling, Swedish kronor and Swiss francs).
“We are looking back on a very active year in terms of sustainable issuance,” said Ola Littorin, head of long-term funding. “We're quite pleased and very proud of what has been achieved.”
Moreover, Nordea spread its ESG funding across almost the entire debt stack. The bank’s green issues in 2023 ranged from covered bonds to Tier 2 dated subordinated debt via bail-innable senior non-preferred instruments.
Given their limited availability, “we try to use green and SLL assets when we think it makes most sense from our [perspective] and an investor and market perspective,” said Petra Mellor, head of bank debt.
Meanwhile, the bank’s active investor relations effort saw it undertake nearly 350 investor meetings during the year. While 70% were with institutions in Europe (spread across almost 20 countries, including Bulgaria and Slovakia), it also engaged with buyers in much of Asia and North America.
Littorin describes these as “active conversations with our key investors globally, to prepare and facilitate issuance but also to facilitate channelling of capital towards sustainable solutions that we have on offer in the bank”.
The effort was helped by Nordea gaining a stronger ESG risk rating from Sustainalytics, which now ranks it best among the Nordic banks.
Exporting SLLBs
One of Nordea’s two key transactions over the year was the landmark of its first international SLLB. Launched in August, the €1bn senior non-preferred bond built on a €400m-equivalent four-trancher in Norway and Sweden a year earlier (issued as senior preferred debt). Exporting the structure beyond its local region after ISS ESG had reviewed the inclusion of new eligible assets from the €1bn of drawn SLLs in the underlying portfolio, Nordea’s three-year non-call two bond drew nearly €1.9bn of orders.
This allowed it to tighten the deal by over 20bp to the narrowest spread on a Nordic euro SNP in six months (mid-swaps plus 68bp) despite SLLBs being an unprecedented structure in the currency. This novelty led Nordea to extend its normal intraday execution for SNP debt to allow for a global investor call and one-on-ones on the SLLB framework and underlying portfolio.
“We do not like to take overnight risk for a big benchmark … [but] investors appreciated that we allowed for 1.5 days,” said Mellor.
Even though no other banks have yet adopted the structure, its significant potential for lenders has already prompted the International Capital Market Association – which oversees principles for the sustainable finance market – and the Loan Market Association to convene a joint taskforce on instruments for refinancing SLLs.
After it collects input on SLL eligibility criteria and expected levels of transparency and reporting, the taskforce is set to publish guidance on minimum requirements and best practice.
Nordea expects to be represented on the body, though Credit Agricole, JP Morgan and the Nordic Investment Bank will serve as its coordinators. NIB is the only other lender yet to have indicated concrete interest in SLLBs, though others are also investigating the concept, according to market sources.
“We welcome [the taskforce] very much,” said Mellor, who anticipates other banks starting to issue their own SLLBs in the first half of 2024. “It is only positive for us if [SLLBs] become more standardised and recognised.”
Stellar sub debt
The other notable highlight was the bank’s return to the subordinated debt sector in November. Its green Tier 2 offering was not only a first for Nordea (which had last issued a benchmark Tier 2 bond in the European currency in May 2021), but the €500m 10.25-year non-call 5.25 deal marked the inaugural green issue of dated sub debt in euros from the entire Nordic region – and at a time when Tier 2 supply had been meagre since the first half of the year.
Despite its riskier junior debt format, the bond’s timing and rarity won it a strong reception from investors. Nordea estimates its greenium at 5bp – exceeding the benefit it achieved on most of its lower-risk green covered bonds over the year and matching its best greeniums of the year, which mostly came on a multi-currency SNP quartet in May.
Three hours after launch by lead managers Barclays, BNP Paribas, Goldman Sachs, Morgan Stanley and Nordea’s own investment bank, the “no-grow” Tier 2 deal had attracted over €2.3bn of orders from investors. Even with pricing trimmed by as much as 30bp from initial thoughts, the final order book remained above €2.1bn while Nordea paid no new issue concession and achieved the lowest spread (plus 185bp) on any euro Tier 2 bond in the previous 18 months. Bankers attributed this to the deal’s green status.
“We thought it was a perfect combination,” said Mellor, noting that the bank had limited needs at the time both for green funding (ahead of updating its asset portfolio) and Tier 2 capital.
French institutions were particularly prominent among the 120 investors – mostly asset managers and funds – that were allocated bonds, representing almost a third (32%).
Covering the bases
Nordea’s commitment to raising green debt across its capital structure meant that only five of the 15 benchmark bonds it brought to market during 2023 were not in ESG formats. This push, which it had to manage against the background of a fierce sell-off in bank credit in March as Credit Suisse and Silicon Valley Bank failed, saw it rack up several records once spreads stabilised.
These included the largest green senior non-preferred bonds in both Norwegian kroner and Swedish kronor, as well as the biggest Swiss franc SNP deal – green or conventional – from any Nordic issuer. The bank also got its inaugural sterling green SNP away in this intensive period (just three weeks in May, for which it had saved its green assets, according to Mellor).
The latter deal marked the first three-year non-call two SNP in the UK currency.
Nordea estimates its greeniums on each of the quartet at 5bp.
While the bank is set up to issue in ESG bonds in all currencies, it may not be bringing US dollar or yen green bonds and SLLBs soon. Mellor describes euro and Nordic investors as “more front-footed” on the products.
The year’s Norwegian and Swedish SNP issues also represented green debuts for its Nordea Bank Abp parent company in the currencies, though its local covered bond entities had brought inaugural deals in 2021 and 2022, respectively.
In the second half of the year, Nordea focused again on its green covered bonds, issuing hefty deals of €1bn, SKr6bn and NKr7bn, plus a DKr2.3bn tap, in the space of three months. The euro jumbo reflected a change in Finland’s regulatory approach to data protection of environmental certificates that brought single-family properties into scope and almost doubled Nordea’s collateral pool.
Greeniums on these intermediate maturity bonds varied more widely than on the SNP and Tier 2 portion of its issuance, ranging from 1bp to 5bp.
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