(Bloomberg) – Bank of America Corp. was the first on Wall Street to issue a pandemic bond. He hopes to establish a trend.
The bank assessed a billion dollar bond on May 14 to finance projects addressing social issues related to Covid-19, the first sale of an American financial institution that explicitly links all products to the fight against the virus. . Investor response has been enthusiastic, said Karen Fang, the bank’s global sustainability chief.
“ESG is not just a luxury in the bull market,” Fang said in an interview, citing the bank’s own research. “ESG is a necessity for the bear market.”
Businesses, governments, multilateral organizations and development banks have raised record debt of $ 108.4 billion this year to mitigate the effects of the deadly virus, according to data compiled by Bloomberg. Chinese companies have sold most of the so-called pandemic bonds, raising about $ 48.3 billion.
The Bank of America bond was created in March as the virus spread to the United States and much of the country began to close. Senior executives, including Vice President Anne Finucane and Chief Operating Officer Tom Montag, participated in internal discussions on the bond, which took weeks to build.
The price of floating rate fixed rate notes for lending to the health care industry was aggressive. The deal is tighter than the lender’s usual benchmarks, Fang said, and the bonds will earn 1.30 percentage points above T-bills.
A solid pipeline
Bank of America has raised more than $ 8 billion through environmental and social bonds and has a “very solid” pipeline, said Fang. Other virus related debt includes the $ 1.25 billion sustainability bond from Pfizer Inc. and the $ 800 million offer from USAA Capital Corp.
While the deal makes sense for a lender like Bank of America with a strong presence in the green and social bond markets, it may not open the floodgates for similar transactions, according to CreditSights analysts.
“We are a bit doubtful that we will see an imminent increase in ESG-type offerings from banks,” said ESG and CreditSights Sustainability chief Josh Olazabal and US chief financial officer Jesse Rosenthal in an email. . “It will really depend on the issuer’s internal goals for ESG products and for investors.”
Still, ESG-focused investors like Nuveen and Eaton Vance Management expect more commercial banks to follow. According to Vishal Khanduja, head of superior portfolio management at Eaton Vance, other lenders who have “the concentration and expertise” to create such loans will seek to replicate the Bank of America agreement.
“We expect other sponsors to continue to innovate in the structure and provide large-scale investable impact opportunities,” Khanduja said in an interview on Tuesday.
Nuveen, who oversees about $ 1 trillion in assets, has previously had discussions with underwriters from two banks because there is interest in similar transactions, according to Stephen Liberatore, team strategy manager. fixed income securities.
“He was the leader,” said Liberatore of the Bank of America bonds. “Now that others see what is expected and how it can be done, there is a model for other banks.”
© 2020 Bloomberg L.P.