Extraordinary deals for an extraordinary year
Issuing bonds became a lot harder for every type of borrower in 2022 — and sovereigns, supranationals and agencies were no exception. After a long spell of issuing into a market buttressed by central bank bond buying and rock bottom interest rates, all of a sudden the capital markets became a less certain place as interest rates and yields rocketed in response to a host of macroeconomic and geopolitical shocks from soaring inflation to the effects of the invasion of Ukraine. No longer did any deal work at any time, as had been the case, and the art of syndication was back. Execution for some could no longer be guaranteed as the number of pulled deals mounted but, despite this, there were a number of standout trades that helped to haul this group of borrowers through their funding tasks for the year by either re-opening markets in volatile times or by showing ingenuity and pragmatism to get funding done. By Addison Gong and Ralph Sinclair.
Sovereign Deal of the Year
£4.5bn increase of 1.5% July 2053 green Gilt
Barclays, BNP Paribas, HSBC, JP Morgan, UBS
It is unusual to select a tap of an old issue as deal of the year, but then this was no ordinary year in the bond market. And this was a deal syndicated in a week of unprecedented disruption.
On September 23, the new UK government led by prime minister Liz Truss and chancellor of the exchequer Kwasi Kwarteng delivered a mini-budget to parliament aimed at unleashing growth.
Instead, it unleashed chaos as the bond market baulked at the prospect of funding tens of billions of pounds in tax cuts and energy bill support.
This syndication had already been postponed once because of the death of Elizabeth II. The market was in a much worse state by September 28, the day of the rescheduled syndication, but the Debt Management Office led by Sir Robert Stheeman, decided to push ahead — as any responsible sovereign issuer of the UK’s calibre would.
Thirty year Gilt yields soared above 5% during the morning of execution — an unprecedented intra-day move for this market, according to DMO records — before the Bank of England stepped in with emergency bond buying, which pushed them down 30bp during the allocation process.
Despite the volatility, the UK still gathered £30bn of orders and got its deal away. Few if any other issuers could have syndicated a bond in such a market.
So bad was the upheaval and the damage to the UK’s fiscal credibility, leaving the Bank and the DMO to deal with the mess, that it cost Truss and Kwarteng their jobs. Stheeman and his team still have theirs.
Agency Euro Bond of the Year
€2bn 0.1% March 2027 bond
Danske Bank, Goldman Sachs, JP Morgan and LBBW
Rentenbank scored its largest ever euro benchmark with this deal but what was more impressive, perhaps, was the re-offer spread — 25bp through mid-swaps after 5bp of tightening during execution.
It was the tightest spread to mid-swaps not only in the German development bank’s history, but also by any SSA issuer in the five year part of the euro curve since 2018.
The deal showed other issuers what was achievable. It also helped the market come to the realisation that primary market pricing had become dislocated from secondary spreads. The bond was priced with a new issue concession of minus 7bp versus Rentenbank’s own curve but appeared to pay a slight premium when compared to what it would normally expect to pay compared to its compatriot peer, KfW
The issuer exploited swap spreads to offer a pick-up over Bunds of 48bp, which proved irresistible for investors for what was German federal state risk. “[Investors] hated us because of the level, but everybody came in,” said a banker on the trade.
Other euro issuers such as Finland and Austria have since pushed even deeper through mid-swaps with similar deals but Rentenbank’s deal led the way, coming at a time when the market was still accepting the fact that the Bund-swap spread would stay wide for a while. And sure enough, that theme remained dominant in the SSA market for the rest of 2022.
SSA Dollar Bond of the Year
$4bn 3.125% June 2027
Citi, Nomura, TD Securities and Wells Fargo
The dollar market has not been itself in 2022 as far as SSA issuers have been concerned, with volumes down compared to previous years. But the World Bank proved there was still life in this key funding arena for SSAs after a string of difficult transactions from peers.
Bankers had described the overall SSA market as “tough” before the summer, and conditions were tougher still in dollars.
So for the World Bank to be able to take $4bn in one go with smooth execution was no easy task even for this most storied of issuers. The dollar market had, after all, effectively shut its door to some SSA names at the time.
The World Bank took $5.5bn of orders to help it shave 2bp off initial price thoughts to land the five year note at 40bp over Sofr mid-swaps.
The transaction was seen as a positive omen by those on and off the deal, injecting a much needed shot of confidence into a market shaken by volatility.
Sub-Sovereign Bond of the Year
Autonomous Community of Madrid
€500m 2.822% October 2029 green bond
BBVA (green structuring adviser), CaixaBank, Crédit Agricole, ING and Santander (lead managers)
Madrid has been, and continues to be, at the forefront of the development of Spain’s green financing. It was the first government entity in the country to issue a green bond back in April 2020, ahead of even the sovereign. And with the new October 2019 line, which was the city’s third green transaction, Madrid has become the most active Spanish green issuer from the public sector.
The bond was fully aligned with the EU Green Taxonomy, a rarity even in Europe. It was a first not only for Madrid, but for Spain.
While the trade might not have been especially large, or attracted a multiple-times subscribed book, it made an impression.
Over the years, Madrid has proved its willingness and ability to move Spain’s green funding capabilities forward. This trade was another important milestone.
SSA SRI Deal of the Year
Republic of France
€4bn 0.1$ June 2038 inflation-linked green OAT
Barclays, BNP Paribas, Crédit Agricole, Natixis and Société Générale
Several governments made their green bond debuts in 2022 with Austria, Canada and New Zealand all making their initial forays into the market.
Indeed, Austria brought a further innovation in the autumn by issuing the first ever green sovereign T-Bills — a product it plans to issue quarterly from next year.
However, it was one of the original sovereign green bond issuers that really caught the eye by bringing a new product that both broadened the suite of green securities on offer while also addressing a key theme of 2022 — protection from inflation.
Announcing its intention to explore a 10-15 year green OAT€I in December, the deal was priced in May — a day after Austria’s €4bn debut — amassing €27.5bn of orders allowing the leads to tighten the spread 3bp during execution for a stellar result and opening a new front in the financial fight against global warming.
Supranational Euro Bond of the Year
European Investment Bank
€4bn 1.5% June 2032 Climate Awareness EARN
Bank of America, BNP Paribas, JP Morgan and NatWest Markets
One of the world’s biggest issuers of green and sustainability bonds, the EIB first sold a Climate Awareness Bonds 15 years ago. But the issuer took its ESG credentials to the next level in 2022 by starting to issue Climate Awareness Bonds under its Euro Area Reference Note (EARN) programme — the brand for its benchmark deals in its home currency.
The move demonstrated the issuer’s growing sustainability lending requirements as well as the boom in investor demand. EARNs typically come bigger than the EIB’s other euro issuance, usually weighing in at €3bn-€5bn.
This first Climate Awareness EARN from May not only marked a milestone for the supranational but provided an important test of demand for longer dated debt, which has been harder to sell in a year marked by rocketing interest rates.
The trade certainly delivered on all fronts, being the EIB’s largest ever Climate Awareness Bond. The final book of €23bn allowed the issuer to tighten 2bp during execution to price 19bp through mid-swaps.
The EIB repeated the trick in September, this time pricing a €4bn March 2030 Climate Awareness EARN out of €33bn of demand.