The International Bank for Reconstruction and Development (IBRD) – better known as the World Bank – has teamed up with Bank of America Merrill Lynch (BAML) to launch a new ten-year World Bank Step-Up Callable Green Bond that has been sold to retail clients of Merrill Lynch Wealth Management. This is the third time that the World Bank has teamed up with the US bank to sell a green bond, the last time taking place in 2011.
The bonds are callable after one year by the World Bank and offer a coupon of 2.32% pa. for the first five years which, if the bond is not called, steps up gradually to pay an 8.82% pa. coupon during the last six months until maturity. Shares of the bonds were sold in $1,000 denominations. The bond offering raised nearly $12.1m. BofAML was the lead manager/underwriter on the bond offering.
World Bank green bonds are considered high grade bonds because of the World Bank’s S&P AAA credit rating, and allow investors to receive a regular coupon.
“This World Bank green bond gives investors a unique opportunity to invest in an AAA-rated bond while their money goes toward environmentally positive projects that the green bond market is involved in,” Kirstin Hill, head of wealth management product origination, BAML told SRP in an interview. “We are categorically committed to the green bond space and to offering these to investors who wish to invest both for returns and positive environmental impact.”
“We felt that this transaction was very successful,” Suzanne Buchta, head of green debt capital markets, Americas, BAML told SRP. “If we find there is additional demand, we could do another green bond with the World Bank in the future.”
The bonds support the World Bank’s low carbon development projects and alternative energy initiatives across member countries. These can include funding new technologies that reduce greenhouse gas emissions, enhance reforestation, offer flood protection and enable watershed management.
Investor demand
“We are pleased to work with Bank of America to provide an opportunity for their clients to help finance activities that promote low carbon and climate resilient development and growth in emerging economies,” said Doris Herrera-Pol, director and global head of capital markets at the World Bank. “We are delighted with the strong demand for this product.”
“Clients continue to turn to us for opportunities to express their social, political and environmental values through their investments,” said Andy Sieg, head of global wealth and retirement solutions for BAML.
According to BAML, since the bank’s 2011 foray into green bonds, it has become the underwriter of green bonds for other companies, including Toyota, and has also more recently carved out a similar niche for itself in the European marketplace. BAML believes it is the only US house that has underwritten a green bond targeted to the wealth management audience.
BAML currently has 13,800 financial advisers working across its retail distribution network.
SRP’s US product database includes 28 US-only World Bank bonds dating back to 2006 of which 26 products are still live. A dozen were offered in 2011, followed by seven during 2012, only one in 2013, and two additional bonds offered year-to-date 2014. Like this bond underwritten by BAML, the two other World Bank bonds issued were callable step-up fixed rate notes. One, in coordination with Citigroup, struck its price on May 22 while the other, working with Wells Fargo, struck its price on June 25.
This product will be added to the US products database shortly.
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