French water utility Saur on Wednesday became the first corporate to issue a benchmark blue bond, and in doing so proved the benefit of effective labelling for a credit that had been downgraded to junk earlier this year. Only a few corporates have issued in blue format – Denmark's Orsted issued a €100m private placement blue bond in June 2023, and Japan’s Maruha Nichiro brought a small deal the year before. The structure of the bond is not new. It’s classified as a green bond and aligned with ICMA's Green Bond Principles but the use of proceeds all relate to water, enabling it to take the rarer blue label. Other corporates have issued green bonds with some water-related proceeds, but few have had enough eligible assets for only water-related use of proceeds. "When considering the incoming bond issuance, we easily identified a large pool of capex, opex and equity investments in projects that are by essence green and/or blue," said Stephanie Rousseau, group treasurer at Saur on the decision to issue in blue format. "In addition, there is growing attention on water-related investments, and the use-of-proceeds format allows Saur to highlight its water investments, formalised through the blue label." Saur’s €550m five-year note, which was issued through its parent company Hime (BB+/BB+), didn’t just provide an opportunity to indicate the use of proceeds. “[A blue bond is] a way for [Saur] to differentiate itself,” said a lead banker. “It’s not an easy credit. It’s just been downgraded to Double B plus so they need to find a way to attract the investors.” Hime was downgraded to BB+ from BBB– by S&P at the beginning of October due to “reported weak cashflow generation at its sole operating subsidiary Saur and deterioration in its leverage position”, according to the rating agency. Fitch had already downgraded Hime to BB+ in April from BBB– following a weak performance in 2023 and a downward revision of Saur’s expected cashflow generation from 2024–27 due to increasing costs in the French municipal water industry and lower expected levels of working capital. Growing interest The new issue took advantage of a growing buyside interest in blue bonds. Fidelity, for instance, said last week that it had set up a blue transition bond fund. “There are more active and engaged investors that see this financing gap for the blue economy and have set up funds that are looking at these themes,” said Arthur Krebbers, head of corporate climate and ESG capital markets at NatWest Markets, which wasn't involved in the deal. In a NatWest survey in June of 32 fixed-income investors, clean water and sanitation was the most interesting environmental theme ahead of biodiversity loss, waste management and pollution prevention. But other investors were less taken with Saur. One corporate investor said the blue label would be helpful to market the deal because “the company has just been downgraded and is having issues with performance, which may have put some investors off" but added that "its blue bond status does not make a material difference for us". Arguably, there was some material difference with Saur, with the bond upsized from an initial target of €500m after books peaked at more than €2.25bn. How big a pricing advantage Saur gained from the blue label is more difficult to gauge, in large part because many corporate bonds are pricing tightly, whether they are conventional or ESG-labelled. Leads BNP Paribas, Credit Agricole, Morgan Stanley and Natixis opened books at 5.375%–5.50%. They launched the upsized bond at 4.875% and final books were more than €1.95bn. Fair value was put at 4.875%–5%. Positive impact "Saur priced through fair value. I think the blue labelling and structure had a positive impact and it is a form of diversification too,” said Frederic Zorzi, global head of primary ma
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