Swedish fuel company Preem Holding paid a double-digit yield for the price of minting its green financing framework with an inaugural €340m green bond.
The holding company, rated B1 by Moody's, sold the senior notes due 2027, callable in 2024, with a 12% coupon at a price of 96. The global coordinators were Citigroup and Deutsche Bank. DNB Markets, ICBC and Swedbank were bookrunners.
The proceeds from the bond, along with available cash and cash equivalents, will repay a US$540m term loan.
Moody's assigned a B1 rating to the issuer and an expected B3 rating to the bonds, with the notes notched down given structural subordination to other sizeable financial debt in the restricted group.
Preem Holding, the issuer of the bond, has limited assets and essentially no cashflows other than dividends from Preem AB, the issuer of the borrowing base facility, according to Moody's, and the bond does not benefit from guarantees from operating subsidiaries and is secured only by share pledges of the issuer.
The bond therefore ranks behind trade payables and lease claims at the operating level in Moody's loss given default model, as well as a sizeable borrowing base facility secured by trade receivables and inventories.
"[Moody's] expects funding for future capital spending to be raised at the operating level, which will result in incremental liabilities ahead of bondholders," said Moody's. "Although several assets in the restricted group, including fixed assets, are not pledged and the book value of these assets well exceeds the nominal value of bond, there is substantial uncertainty about recovery value of those assets in a default scenario."
Preem aims to achieve net zero carbon emissions by 2035 across the value chain, and it is investing in renewables refining capacity through retrofitting and converting existing fossil production to renewables.
"Preem is in the process of implementing the largest change in the company's history with a number of crucial infrastructure projects at our refineries," said Magnus Heimburg, chief executive officer of Preem.
In April, Preem said it would sign a SKr3bn (€282m) seven-year loan with Swedish Export Credit Corporation, which would be covered by the Swedish National Debt Office's programme for green credit guarantees.
The guarantee, which covers 80% of the loan, was the first issued by the Swedish National Debt Office within the framework of the central government's green guarantee programme, with the intention of financing Preem's planned major investment at the Lysekil refinery for the production of biodiesel based on renewable raw materials.
The total cost of Preem's investment in the refinery is SKr3.525bn.