(Bloomberg) -- Enbridge Inc.’s first sustainability-linked bond allowed the North American pipeline operator to cut borrowing costs compared to the interest on its regular securities.
The Calgary-based company sold $1 billion of the 12-year securities to yield to 2.54%, that’s at least five basis points tighter than where the company’s regular debt would’ve priced, said Max Chan, Enbridge’s vice president of treasury. The so-called greenium was reached after more than 100 investors took part in the transaction allowing the firm to build an order book of more than three times the issue size, he said.
This is the second Canadian issuer to offer sustainability-linked bonds after Telus Corp. sold C$750 million ($609 million) of the debt this week. Earlier this month, Italy’s Eni SpA became the first oil company to sell euro-denominated bonds tied to cutting carbon emissions.
The debt includes a potential step-up should Enbridge fail to comply with targets regarding carbon emission reduction as well as the representation of racial and ethnic minorities in its workforce. The company plans to use proceeds from the sale for general corporate purposes, including repaying existing debt and the funding of capital projects.
“We’re very pleased with the response,” said Chan in a telephone interview after the deal priced. “We spent yesterday talking to over 120 investors and the feedback was almost uniformly supportive.”
Enbridge’s 2033 sustainability-linked bond coupon will have a step-up of 50 basis points if the firm doesn’t comply with a target to reduce its carbon emissions by the end of 2030, said people familiar with the matter, who asked not to be identified because details are private. Also, interest payments may rise if less than 28% of the company’s employees are ethnic or racial minorities by the end of 2025.
While the majority of investors were based in North America, around 10% were buyers based in Europe while a small portion of the notes were placed in Asia and Australia, said Chan. The company may consider issuing a SLB deal in Canada later this year, he said.
Sustainability-linked bonds are a nascent asset class that generally penalizes issuers with higher borrowing costs if they don’t meet certain environmental, social and governance metrics. If the borrower meets or exceeds targets, coupons remain unchanged. In contrast to green bonds, companies can use deal proceeds as part of their general funding plans.
The company also raised $500 million through the sale of 30-year regular securities at 130 basis points over Treasuries after initially offering the bonds at a spread of around 155 basis points.
--With assistance from Robert Tuttle, Brian Smith, Paula Seligson and Allan Lopez.
© 2021 Bloomberg L.P.
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