Telecoms giant Verizon sourced a new avenue for funding at attractive rates on Tuesday with its first ever Green bond issue – still a rare type of security in the US market.
The company raised US$1bn from the 10-year offering, and was able to price it flat to its curve as investors with environmental, social and governance mandates proved hungry for a Green bond from a large corporate name.
Although the pace of Green bond issuance slowed last year, 2018 still saw US$167bn of such deals globally – up from US$13bn in 2013, according to an S&P report.
While a regular sight elsewhere in the world, Green bond deals from US issuers are relatively rare, although Apple, Bank of America, Morgan Stanley and several utilities have sold Green bonds.
Verizon became only the second telecommunications company to issue Green bonds globally, following a €1bn five-year issue from Spain Telefonica on January 28.
“This is a first for Verizon and a first for telecom in the US,” CreditSights analyst Jay Mayers told IFR.
“It’s a way to figure out what the demand is and see what investor appetite is for something like this,” he said.
Proceeds will help fund projects in renewable energy, energy efficiency, smart cities and green buildings.
The debt can also be used to pay for 5G infrastructure, which will allow real-time monitoring of energy demand and is also one of Verizon’s central pillars for growth in coming years, granting wireless consumers faster internet connection speeds.
Verizon’s ambitions for a nationwide roll-out of 5G technology are far grander than this bond issue provides, but it at least offers a new avenue for funding.
“It’s not something that can finance all of its 5G investments, but it’s another tool it can use for 5G deployments over the coming decades,” Mayers said.
There are particularly strict standards regulating what constitutes a green investment in the US, which helped keep corporate issuers away from the space and brought non-financial green issuance volumes marginally down year-on-year in 2018, according to S&P.
Nonetheless, telecoms operators have taken a particular interest in the product lately, with British telecommunications company Vodafone also waiting in the wings to issue its own Green bonds, said Tanguy Claquin, managing director and global head of sustainable banking at Credit Agricole.
“We have not seen so many issuers so this is a positive sign,” he said. “But is it a big wave? It’s too early to say.”
STILL ABOUT DELEVERAGING
The announcement of the trade initially caught investors by surprise as Verizon was widely expected to steer clear of the bond market this year to focus on deleveraging.
Verizon has not sold bonds since May last year when it raised US$1.788bn from a 3.716% floating-rate issue, according to IFR data.
It has one of the largest corporate debt stacks in the world – with total debt outstanding of US$184bn and outstanding bond maturities of US$106bn, according Refinitiv data.
But it has also had a focus on sustainability since 2009, according to the company website. Verizon is aiming to cut its carbon intensity – a measure of emissions released relative to energy output – in half over 2016 levels by 2025.
“Our expectation is that Verizon – as is the case with other telecoms names that took on significant debt over the past year – is going to be relatively quiet in 2019 from an issuance standpoint,” one investor said. “We still expect that to be the case but understand we may see some one-off issuance such as this, which is part of the company’s desire to expand its funding base and tap into a growing global interest in Green securities.”
While the bonds will increase the company’s debt load marginally, its gross leverage won’t budge much from 2.4 times, according to CreditSights.
In fact, because these are investments that Verizon would probably have had to pay for anyway out of its capital expenditures, the bond issue could free up cashflow that may be used to bring down debt.
“It’s not that this is a deleveraging transaction,” Mayers said. “But we’re not viewing this as a move away from being committed to their balance sheet.”
Source: Nasdaq