Bond of the year: Corporate - Apple

Channels: Green Bonds

Companies: Apple, JP Morgan, Sustainalytics, Goldman Sachs, BAML, Bank of America Merrill Lynch

People: Marilyn Ceci

Apple’s inaugural green bond was, and remains, the largest US corporate green issue.

The $1.5 billion bond, issued in February 2016, was hailed by one judge for “setting a good example to corporate America.”

Despite the rapid growth of the green bond market in recent years, corporate issuance, particularly from the US, has disappointed many market specialists.

"Apple's green bond is a terrific example of a corporation taking a comprehensive approach to sustainability"
Marilyn Ceci, JP Morgan

A source at one of the lead managers confirms that “Apple’s green bond has inspired other companies to issue green bonds, thereby spurring market growth and diversification.”

It was “a welcome demonstration of how the technological sector can do a green bond,” said one judge.

Marilyn Ceci, head of green bonds for JP Morgan, one of the three lead managers on the issue, says: “Apple’s green bond is a terrific example of a corporation taking a comprehensive approach to sustainability. They’ve established their three environmental priorities where they believe they have the most environmentally positive impact [see box] and are ensuring that the use of proceeds fits within those parameters.”

The bond’s green credentials have been vouched for in a second opinion from Sustainalytics, which described them as “robust and credible”.

“The company’s plan to undertake projects that eliminate the use of toxic substances in its products that adversely impact human health and the environment is especially noteworthy,” said the research and ratings firm.

Issuer: Apple

Deal type: Use of proceeds

Issuer rating: Moody’s Aa1, S&P AA+

Governing law: New York

Lead managers: Goldman Sachs, BAML, JP Morgan

Size: $1.5 billion

Tenor: 7 years

Coupon: 2.85%

Spread: US Treasures + 135bps

Date of issue: 23 February (settlement date) 16 February (pricing date)

Use of proceeds: Projects that:

  • Reduce our impact on climate change by using renewable energy sources and driving energy efficiency in our facilities, products and supply chain;
  • Pioneer the use of safer materials in our products and processes; and/or
  • Conserve precious resources.

External assessment: Sustainalytics

Highlights:

  • Biggest US corporate green bond
  • First US$ green bond from a ‘household name’
  • First green issue from a US technology company
  • Backed by third-party audit from EY

In addition to this second opinion, the Apple bond is unusual in also having an annual audit from EY.

The landmark issue formed part of a $12 billion, nine-tranche, bond offering from the world’s biggest company and is intended to help it achieve its ambitious goal of powering all its corporate offices, retail stores and data centres from renewable sources.

“We wanted to demonstrate how businesses can lead in driving the reduction of global emissions,” Apple said.

On the morning of the offering, Apple announced ‘initial price thoughts’ of about 145 basis points over US Treasuries but, as demand grew during the day, it eventually priced at 135 basis points over.

The order book reached $3.335 million, meaning it was 2.2x over-subscribed, with 44% of the buying interest coming from dedicated ‘green’ investors, none of whom dropped their orders as the price tightened, according to one lead manager.

“Our desire was to broaden our investor base as much as practicable through new, green investors. In fact, 20% of the allocations for the green tranche were to investors who only participated in the green tranche,” an Apple spokeswoman adds.

The success of this inaugural green issue could be the first of a series. Apple “plan[s] to evaluate the issuance of additional green bonds in the future,” she says.

The bond is expected to be fully allocated within two years and by 24 September (the end of Apple’s 2016 fiscal year), $441.6 million had already been allocated to 16 projects. More than half went to green buildings and almost a third to renewable energy projects.

In its first impact report, published in February, it said these projects would generate more than 20MWh of renewable energy each year and yield annual savings of 191,500 tonnes of carbon dioxide emissions; 20.2 million gallons of water; 6,670 tonnes of waste diverted from landfill and 237MWh of energy savings.

The 1.873 million sq ft of green buildings financed in this first tranche of spending, includes the firm’s new headquarters in Cupertino, California which it claims will be one of the world’s most energy efficiency buildings in the world when it is finished.

Click here to read about all the announced winners