Credit Analyst corner

Romain Miginiac

BBVA issues the first green AT1 bond

I joined Atlanticomnium two years ago having spent more than four years specialising in banks and insurers in Edinburgh and Geneva. I now lead our team of four credit analysts. A good part of the last few years has been our focus on integrating ESG considerations in our investment process so it is gratifying to see capital being raised specifically to target green investment.

In terms of structure these bonds are exactly the same as “normal” AT1s, the only difference is the use of proceeds, in that “green” AT1s (and green bonds in general) must be used to back green eligible assets (for example renewable energy). We participated in this offering as we like the issuer as well as structure of this AT1 coco i.e. callable after 5.5 years and if not called, the coupon resets based on 5YRS swap rate +645bps. In other words, a strong issuer, high steady income and limited extension risk. While we fully understand concerns on whether capital securities should benefit from the green labelling (#greenwashing), the key is to understand the rationale/benefit from doing so. In this case, BBVA is highly committed to sustainable finance, over the past 18 months it has already mobilized EUR 30bn for that purpose, with another EUR 70bn committed by 2025. This generates incremental risk-weighted-assets that need to be offset by capital – so issuing green capital securities to facilitate the origination of green eligible assets makes sense, at least form a philosophical standpoint. So a step closer to green capitalism and a win-win-“win” situation.

Anthony Giret

BP plc. issues its first corporate hybrid

I am delighted to have joined Atlanticomnium in July. Having spent seven years as a credit analyst on the sell side with a focus on European corporates and high yield, my focus in the team here will be on corporates and especially corporate hybrids. So it seems that the (GAM) Stars were aligned in that in my first month BP Plc issued its first corporate hybrid and the largest corporate hybrid issuance by one company to date.

BP made its giant entry into the corporate hybrid market issuing a total amount of c. $12bn hybrid bonds in USD, EUR, GBP. Altogether, BP’s new issues increased the total size of the European corporate hybrid market by around 6%. We consider the yield to be highly attractive from a relative value perspective, given BP’s strong credit profile. The group is rated A- by S&P, and the hybrid instrument BBB. For the EUR hybrids, the yield is c. 2.6%, which represents a large pick-up compared to the senior bonds that yield 0.3%. Their hybrids are a way for BP to issue flexible capital instruments that strengthen its balance sheet in a period challenged by Covid-19 and its adverse impacts on the oil sector. Although having maintained its dividends for the time being, BP is implementing financial measures to limit leverage deterioration, such as cost savings and Capex cuts.

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