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FIGCovered Bonds

Issuer of the Year, Best Euro Deal of the Year: BPCE

Big isn’t necessarily the best. But when it comes to being a covered bond issuer, and a green bond issuer this year, it was certainly helpful. According to our poll of market participants, BPCE, one of the biggest issuers in the covered bond market was also one of the best, nominated in an incredible five categories and scooping the prestigious awards for both Issuer of the Year and Best Euro Deal of the Year.

Operating through three covered bond issuers – BPCE SFH, CFF and Natixis Pfandbriefbank – Groupe BPCE gets nearly half of its medium to long term (MLT) wholesale funding needs – this year forecast to be approximately €22bn – from the covered bond market so, according to Roland Charbonnel, director of group funding and investor relations, it is important to be a regular and consistent issuer. It is also important to be innovative, as the bank has illustrated with its successful green covered bonds, including this year’s Best Deal of the Year – the €1.5bn, 0.125% December 2030 issued by BPCE SFH.

Consistency is a key part of their approach to the green market as much as it is to their approach to the covered bond market. According to BPCE’s strategic plan they will come to the green or social market in either covered or other formats ‘at least three times per year’. That commitment is important in a market where a lack of secondary liquidity is sometimes a concern for investors.

As an active issuer in both unsecured and covered bond format, BPCE needs to decide which market to issue green bonds in. According to Charbonnel, “since we are a very large issuer of covered bonds, diversification of our investor base is important. Issuance in green or social form brings us more diverse investors.”

Since we are a very large issuer of covered bonds, diversification of our investor base is important. Issuance in green or social form brings us more diverse investors
Roland Charbonnel, director of group funding and investor relations
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But with the covered bond market short of supply in general this year, many non-green investors have been buying green covered bonds in the absence of an alternative. In accordance with BPCE’s investor diversification objective they used a feature (like they did for their inaugural green covered bond in May 2020) for their €1.5bn, December 2030 green covered bond launched in June to ensure that the bonds got to the investors who properly valued their green qualities.

BPCE worked closely with the Green and Sustainable Hub of their in-house investment bank Natixis, to categorise investors according to their commitment to the green market (on a scale from ‘strong’ to ‘none’). With the books for the deal heavily subscribed – an impressive total order book of €2.7bn – they were able to use this categorisation system as the basis for allocations. Strong and medium green investors were rewarded for their commitment by getting a proportionally bigger allocation and investors without a commitment to the green market got correspondingly less.

Every country has a different approach to defining green mortgages so another important feature of BPCE’s green covered bond programme is educating investors about what constitutes a green mortgage in the French retail market that provides all of the programme’s collateral. They made available a dedicated investor presentation prior to the launch of their transaction to properly explain the structure and the criteria to investors. The definition, based on French energy standards, is a very strict one – the collateral must be in the top 15% of carbon efficient homes in France – and one that is fully compliant with the EU’s taxonomy.

Investor diversification is obviously important, but does the work that BPCE puts into their green programme pay off in terms of a cost saving? Whilst Charbonnel admits that estimating a ‘greenium’ is difficult, especially when it comes to covered bonds from BPCE’s existing programmes that already benefit from exceptional pricing, he points to the combination of a large issue size for a single tranche (€1.5bn) and the three basis points of tightening that the most recent green bond was able to achieve from its initial price guidance on the back of the strong green bid.

For a large issuer a good dialogue with many investors is obviously vital, but traditional roadshows have been impossible for BPCE, as they have for everyone else this year. Charbonnel distinguishes between the existing investors with whom he says it has been easy to maintain a good dialogue and new investors that he has not physically met yet, but he hopes to do so shortly. To this end BPCE has already restarted physical roadshows within France.

When your covered bond funding needs are big, it is important to get it right, and that is something that BPCE, voted GlobalCapital’s Issuer of the Year and responsible for the Best Euro Deal of the Year, has consistently done.