S.F. Public Utilities Commission taxable green bonds officially listed on London Stock Exchange

The San Francisco Public Utilities Commission is the first municipal issuer to list on a foreign exchange as it attempts to reach new investors in Europe and beyond.

The SFPUC listed its recent taxable green bond deal on the London Stock Exchange (LDNXF) on Thursday after it sold more than $664 million of taxable green bonds in early October. Two tranches totaling $341 million of Series E taxable Climate Bonds Initiative-certified green bonds — $300 million maturing in 2041 with a 2.825% coupon priced at par and $41 million maturing in 2047 with a 2.945% coupon priced at par — are now listed on the LSE. Of the Series E deal, about 36% of the investors were impact investors, the issuer said.

The listing in this case is more like a registration, a “check the box” requirement for some investors, and not for actual transactions. Buying and selling will still exist in the secondary municipal market. But by listing on the LSE, SFPUC satisfies a regulatory requirement in Europe that the bonds be listed on an exchange.

Both tranches traded up in the secondary after the deal priced, with the 2041s trading at 2.77%-2.80% on the day it was listed, though it is unclear who the buyers and sellers were.

The issuer said its view on listing its taxable green bonds in Europe is part of a long-term plan to build relationships with new, international investors and officials view increasing the investor base for U.S. muni green bonds as an important way to grow its footprint around the globe.

"There’s a larger market for green bonds in Europe but many European green bond investors are limited to buying bonds listed on a European exchange,” said Eric Sandler, SFPUC chief financial officer and assistant general manager, business services. “We view listing as an element of a broader strategy for accessing this larger investor market and driving down the cost of capital.”

SFPUC is also evaluating conducting non-deal-related road shows to highlight its work in ESG and green space, which is especially practical now that they can be done virtually, officials said.

“We’re hopeful that as we refine our approach we’ll be able to attract European buyers,” Mike Brown, the commission's environmental finance manager, said.

Sandler noted earlier this month the SFPUC is committed to building low-carbon, socially inclusive infrastructure and hopes to be an example for other U.S. municipal ESG investors.

“Building off of our work last year to align project impacts with the UN sustainable development goals, we see listing in Europe as another way to reach new investors and participate in the global green bond market,” he said.

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The London Stock Exchange (LDNXF) also welcomed the issuer.

“This landmark transaction is the first green bond from a U.S. municipal issuer to be listed on London Stock Exchange (LDNXF), with use of proceeds being deployed to fund environmentally beneficial projects,” Denzil Jenkins, interim CEO of London Stock Exchange Plc said. Jenkins noted there are currently more than 240 bonds on the exchange’s Sustainable Bond Market, raising over $80 billion from 68 issuers.

SFPUC has been issuing green bonds for more than five years and when it sold its first green bond deal in 2015, it self-certified. The October deal was CBI verified. It followed a December 2019 $657 million transaction, one-third of which went to impact investors.

SFPUC also is part of NASDAQ’s Sustainable Bond Network, a global online platform designed to improve transparency in the market for green, social and sustainability bonds, which also debuted in December of 2019.

Others in the municipal industry are making their footprint in ESG and social visible. Market participants including rating agencies are focusing on ESG, climate change and green bonds, from the largest asset managers to third-party verifiers to issuers themselves. COVID-19 has put a cloud over much of 2020, but investors and issuers say that it potentially makes ESG and climate change even more important going forward.

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