Weekly Update: Florida’s City of Venice issues $15.4m green muni / Solar Star Funding $325m & Gwynt y Mor £339.2m ($524m) / UK Labour promotes retail green bonds / Sweden SPP green bond fund / IFC supports green mkt in India

Jay OwenGreen Prosperity, SRI/ESG News

Weekly Update: Florida’s City of Venice issues $15.4m green muni / Solar Star Funding $325m & Gwynt y Mor £339.2m ($524m) / UK Labour promotes retail green bonds / Sweden SPP green bond fund / IFC supports green mkt in India

The green and climate bonds covered in this week’s blog are: Florida’s second green municipal water bond, an unlabelled climate bond for SolarStar in California and an unlabelled climate bond for transmission links for off-shore Wind in the UK.  In other market development news; UK’s Labour Party proposes green retail bonds as an elction policy, Swedish insurers SPP will establish a green bond fund and ifc supports the growth of an Indian green bond market.

Municipal issuance

Florida’s City of Venice issues $15.4m green muni bond; 1-25yr tenor, AA, 2-5% coupon

The city of Venice, Florida, has issued a $15.4m green muni bond. It has 18 tranches with maturities ranging from 2016-2035 and coupons between 2-5%. The bond is rated AA, Aa2 and AA by S&P, Moody’s and Fitch respectively. Lead manager is RBC, and the underwriter is Raymond James & Associates.

This is the second green muni bond to come out of Florida, the first being East Central Regional’s (ECR) US$87m green bond for wastewater treatment. Similar to ECR’s green bond, Venice’s green city bond also has proceeds going to wastewater. The capital raised will go to complete improvements to the water and wastewater systems that began in 2012. The city of Venice justifies the green bond label by specifying that proceeds will be used for drinking water, clean water, sustainable waste management and energy efficiency. It is good to see a recognition of the importance of incorporating energy efficiency into water infrastructure upgrades, as water infrastructure can be very energy intensive: e.g. 17% of California’s energy use goes to its water infrastructure. However, it would also be good to see some indication of climate adaptation measures. As with other recent green water bonds out of the US there is no second opinion provided to investors on the green credentials of the bond. It would be great for investors to have this to help them evaluate the overall climate impacts.

Climate (unlabelled) bonds

SolarStar Funding LLC climate bond is upsized by $10m to total $325m due to demand; 3.95% semi-annual coupon, 20yr, BBB/Baa3  

SolarStar Funding LLC, a subsidiary of Berkshire Hathaway, closed a $325m climate bond (or unlabelled bond) to fund its 579MW solar projects last week. The senior secured bond was upsized by $10m (from $315m) due to investor demand. Tenor is 20 years and it has a semi-annual fixed coupon of 3.95%. Fitch and Moody’s rated the issue as BBB- and Baa3 respectively. The bond follows another private placement from Solar Star in July 2013.

Institutional investors and insurance funds participated in the deal according to a news article. The proceeds from the notes will improve Solar Star’s debt to equity ratio on its solar projects in the Californian counties of Kern and Los Angeles.

Lead managers for the deal were Barclays Capital, Citi and RBS Securities.

EIB’s credit enhancement enables  OFTO Plc to issue a £339.2m ($524m) climate bond; coupon 2.778%, 19yr, A3

Funding for the transmission link for the second largest offshore wind farm in the world, Gwynt y Mor, was secured with a £339.2m climate (unlabelled) bond. The bond has a tenor of 19 years and a coupon of 2.778%. The European Investment Bank (EIB) supported this issuance by providing a £51m revolving credit note through its project bond initiative. This credit enhancement improved the bonds credit rating to A3 from Moody’s.

Lead managers for the deal were HSBC, Mitsubishi UFJ Securities and SMBC Nikko Capital Markets.

The bond is issued by Gwynt y Mor OFTO Plc owned by Balfour Beatty and Equitix Limited.  The company was given a licence to operate the transmission link by UK regulator Ofgem in February 2015.

The Gwynt y Mor offshore wind farm has 106 turbines generating 576MW and is located eight miles off the coast of Wales. Proceeds from the bond will be used for transmission assets to link the offshore wind farm to the British national grid.

Market Developments

UK Labour Party promote retail green bonds as a vote-winner election promise

With an election just months away, on 7th May 2015, UK opposition party Labour have announced they will ask the UK’s Green Investment Bank to use green retail bonds to finance more solar, wind and other clean energy projects. Currently the Green Investment Bank is publicly owned and restricted on how it can raise capital. Labour is hoping to score some political points by enabling domestic retail investors to invest in green bonds with strong yields that also have a positive climate impact. Exciting times – and with none of the main parties (including the current coalition members Conservative and Liberal Democrats) yet to publish a manifesto – let’s hope green bond growth policies feature across the spectrum of British politics.

Sweden SPP Green Bond fund

SPP, a Swedish insurance company, has set up a green bond fund. SPP states that the expected returns of the fund will be equivalent to mainstream bond funds. This green bond fund will allow retail investors to access the green bond market.

IFC commits to buying $50m of YesBank green bonds

Development institutions can do more to support growing green bond markets than issuing bonds alone. Another way they can reinforce growth is to buy green bonds, as this support boosts confidence and demand in the market for new green issues – especially in emerging markets. International Finance Corporation (IFC) did precisely this by publicly supporting India’s inaugural green bond from YES Bank. IFC committed $50m to green bonds from Yes Bank; a sure indication of expected growth in the green bond market in india.

Green Bond Gossip

Look out for upcoming green bonds from two US universities: University of Virginia’s (expected $68m) and Arizona State University’s (expected $28m). At this time there is not a lot of information on these bonds but we will keep you posted. An announcement last week from Vestas about their green bond will be covered in next week’s blog, once the bond has closed. It’s the first time a big wind corporate has issued in the green bonds market. This is confirmation of our view that the broader, more liquid thematic market will also benefit “obvious” green investments like solar and wind.

We also mentioned Bangchak’s green bond last week; we are looking out for a second opinion for the bond – so far no second opinion has been made publicly available though we are hoping investors are getting sufficient detail. Bangchak has provided public information that the proceeds will go towards renewable energy. The bond will contribute to the US$920m company plans to invest in developing solar, waste-to-power, and biogas, biomass and geothermal power plants over the next 6 years. We’d like to see some more granularity, particularly around biomass, as the climate change impact of biomass projects vary greatly. But more on this next week…

 


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Best regards,

Sean Kidney

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