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In Time for St. Patrick's Day, Alexandria Real Estate Equities Issues Green Bonds

Just in time for St. Patrick's Day, Alexandria Real Estate Equities (BBB+, stable) issued several green bonds. According to the International Capital Markets Association, "Green bonds enable capital-raising and investment for new and existing projects with environmental benefits." To be considered a green bond, the issuer commits to using the proceeds from the bond issue for projects that will enhance its climate or environmental profile. Currently, there are no governmental regulations that stipulate what a company must do to designate an issue as a green bond, but the ICMA has published Green Bond Principles 2018, which outlines its voluntary process guidelines. Typically, the issuer will solicit a second-party opinion to provide investors with its assessment of the company's adherence to the ICMA's four core components of the Green Bond Principles.

The note offering consisted of $200 million 5-year notes, $350 million 7-year bonds, and $300 million 30-year bonds (the 30-year bonds were not designated green bonds). There was significant demand for the offering, which was reportedly 7 times oversubscribed (meaning that there was $6 billion of orders for the $850 million offering). This is about double the average oversubscription level in 2018. Due to the high demand, the bonds were priced at spreads 25-28 basis points tighter than the original whisper talk in the market. The bonds were priced at spreads of +105, +132, and +187, respectively. Typically, new issue bonds are sold at a slight discount to where the firm's existing bonds are trading in order to develop investor interest; however, in this case, according to Bloomberg, the new green bonds were priced at spreads tighter than where existing bonds were trading, leading to a negative new issue concession of 8-10 basis points.