General Motors Co. sold environmentally friendly bonds for the first time ever, joining its competitors in tapping the sustainable debt market to fund the transition to electric vehicles to compete with Tesla Inc.
The automaker priced $2.25 billion of green bonds in two parts, according to a person with knowledge of the matter. The longest portion of the offering, a 10-year security, yields 2.95 percentage points above comparable Treasuries, after initial discussions of as much as 3.2 percentage points, said the person, who asked not to be identified as the details are private.
At $2.25 billion, it is the second-largest green deal from a US corporation outside of the financial sector, according to data compiled by Bloomberg.
“For the future of not only automakers but just transportation more broadly, it portends very well to see the likes of GM come to market with a green bond,” Marcus Martin, head of ESG for commercial products at U.S. Bancorp, said in an interview at Bloomberg headquarters in New York on Thursday.
Companies and governments have borrowed $264 billion in the global green bond market so far this year, a 5.3% drop from the same point last year, according to data compiled by Bloomberg. Top Wall Street debt underwriters, however, see an enduring boom in all things environmental, social, and governance in the second half of the year.
GM expects to allocate the net proceeds from this offering exclusively to clean transportation solutions, including investments for the design, development or manufacture of clean transportation technology and enabling solutions, said the person with knowledge of the matter.
GM’s competitors including Ford Motor Co., Toyota Motor Corp. and Honda Motor Co. have all tapped the sustainable debt market to fund a transition to electric cars. Ford raised $2.5 billion in green bonds in November, which at the time was the largest ever such offering from a US corporation. In March, Tokyo-based Honda topped that by selling $2.75 billion in dollar green bonds.
The Detroit-based company published a sustainable finance framework this year, which will guide GM, GM Financial and their subsidiaries in issuing sustainable debt, including bonds and loans. That will enable GM to align its funding with an all-electric vision, according to the framework.
US and European corporate debt investors rewarded the automotive sector with the largest price benefit average for selling green bonds earlier in the year, another incentive for the industry to tap this market. The 10-year green tranche appears about 9 basis points wider compared to the company’s 3.1% notes maturing in 2032, according to Bloomberg Intelligence credit analyst Joel Levington.
“It’s more of a case of market conditions, more than the ‘greenium,’” said Levington in emailed response to questions on Thursday. “I’m sure there is still plenty of demand for green bonds.”
Barclays Plc, BNP Paribas SA, Bank of America Corp., Citigroup Inc., Credit Agricole SA, Goldman Sachs Group Inc., JPMorgan Chase & Co. and Morgan Stanley managed the bond sale, the person said.
(Updates with pricing details in second paragraph, adds US Bancorp comment in fourth paragraph)
–With assistance from Brian Smith, Christopher DeReza, Andrea Niper and Andrew Kostic.
© 2022 Bloomberg L.P.