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After cratering in March, green bonds look for a rebound

SNL Image

Companies appear to be returning to the market with green bonds to pay for climate-friendly projects like the Anholt offshore wind farm in Denmark.
Source: Ørsted

Hours after saying on April 15 that it planned to sell $350 million worth of green bonds, Hannon Armstrong Sustainable Infrastructure Capital Inc. added $50 million to the offering when it discovered debt investors were hungrier than expected.

"We decided to upsize the transaction because demand for the bonds, including demand from [environmental, social and governnace] investors related to the Green Bond designation, far exceeded the initial size of the offering, and we are confident in our ability to find accretive investments for the incremental size," Hannon Armstrong spokesman Gil Jenkins said in an email on April 16.

After a March that saw issuances plunge 83% from a year earlier to $2.8 billion, there are signs that the green bond market may be recovering. So far in April, a handful of companies in Europe, Canada and the U.S. have issued a total of more than $2 billion of debt to pay for climate and environmental projects, according to a review of recent deals by S&P Global Market Intelligence.

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"This is a really good sign, even in these times, that organizations are still issuing green bonds," said Lea Muething, a market analyst at the Climate Bonds Initiative, during an April 16 webinar. "And there are already deals scheduled for the rest of the month," Muething added, "so the markets are definitely not dead."

Analysts at Oppenheimer & Co. Inc. agreed, saying in an April 15 note that demand for green bonds "remains relatively strong."

China, the first country to suffer the effects of the coronavirus, may signal the sort of rebound green bond markets in other parts of the world can expect as economies begin to reopen from the pandemic. Green bond issuances in China shot up to nearly $800 million in March from less than $200 million in February.

"This is a time of turmoil and crazy volatility, so it's great to see what's happening in East Asia," said Sean Kidney, CEO of the Climate Bonds Initiative. "That gives us a little bit of hope."

Hannon Armstrong said it would use the proceeds from its green bonds to acquire or refinance assets with neutral or negative incremental carbon emissions. Oppenheimer analysts said the debt raise would give Hannon Armstrong "firepower" to pursue deals on favorable terms if financing conditions tighten. The senior unsecured notes would be due in 2025. Hannon Armstrong has $500 million in outstanding bonds due in 2024 that are trading at about par value.

Kidney said it is too early to say how green bond prices will perform through this crisis, but during past downturns, they "tended to hold their value while other bonds have a problem."

Recent activity in equity markets suggests green bond issuers could be in a relatively good position this time around. Some of the biggest investment funds set up with environmental, social and governance criteria have outperformed the S&P 500 so far this year, according to an analysis by S&P Global Market Intelligence.

"Throughout the recent market volatility, one enduring trend has been the move to sustainable investing," BlackRock Inc. Chairman and CEO Larry Fink said on an April 16 earnings call.