TheChek News Flow

EU explores green bonds as part of €750bn borrowing spree

Commission considers selling environmentally-labelled debt to raise Covid-19 recovery cash

The European Commission is considering issuing green bonds for the first time, as investors and politicians call on Brussels to raise sustainable debt as part of its €750bn borrowing spree to fund Europe’s economic recovery from Covid-19. 

Johannes Hahn, commissioner for the EU budget, told the Financial Times that Brussels was “exploring the possibility” of selling sustainable bonds as part of an unprecedented debt-raising exercise that is expected to begin early next year. 

Green bonds are a way of raising money for environmentally friendly purposes; issuance has exploded in recent years, with a total of $263bn sold globally last year, according to figures from Moody’s, up from less than $1bn a decade ago.

“The commission is exploring the possibility to issue part of its bonds in formats that demonstrate its commitment to sustainable finance — including social and or green bonds,” said Mr Hahn. 

In July EU leaders sealed a landmark agreement permitting the commission to borrow €750bn on the international financial markets to fund a “Next Generation EU” project that will hand out grants and loans to help member states recover from the severe economic damage of the pandemic. The commission will also raise an additional €150bn to help fund government unemployment insurance schemes. 

The €900bn issuance dwarfs the commission’s previous debt-raising and will help make the EU one of Europe’s largest bond issuers. Brussels’ decision to consider selling some of the debt in the form of green bonds comes after calls from investors and politicians for the EU to use its recovery fund to help Europe’s green transition. 

Thomas Buberl, chief executive of French insurer Axa, and Pascal Canfin, the head of the European Parliament’s environment committee, told the Financial Times that €200bn of the €750bn should be in the form of green bonds. That would match a promise by EU leaders to spend at least 30 per cent of the recovery fund on sustainable and low-carbon investment. 

Mr Buberl said there was “huge demand” for green bonds from long-term investors like Axa. “We believe they serve our long-term financial interests as well as support the transition to a low-carbon economy,” he said.

Mr Canfin said the recovery fund was an opportunity for the EU “to become by far the largest green bonds issuer worldwide”.

“This is currently being discussed at the highest level in the European Commission and I hope that President Ursula von der Leyen will be able to make a decision in this direction and announce it very quickly,” said Mr Canfin, who is a member of Emmanuel Macron’s party. 

EU governments last year signed up to a pledge to become the world’s first carbon-neutral continent by 2050, a transition that will require trillions of euros in investment.

Mrs von der Leyen will this week announce Brussels’ ambition to raise its emissions cutting target for 2030 from the current 40 per cent to “at least 55 per cent”, compared with 1990 levels. 

Countries including Germany, the Netherlands, France, Sweden and Poland have all issued green bonds. Germany’s maiden €6bn foray into the market this month was five times oversubscribed.

Axa’s Mr Buberl said the rapid increase in green bond issuance and strong investor appetite in the relatively new market would eventually mean green bonds trade in a similar fashion to conventional sovereign debt. 

“I would expect equivalent market conditions between green bonds and conventional bonds . . . [for example] the 20-year French sovereign green bond, which has an attractive yield and maturity profile for private investors,” he said.

However one EU official said the green bonds would not come to market quickly and the early rounds of the commission’s bond sales would be in the form of conventional debt. 

Companies look to cash in on market hunger for technology stocks

Two of the largest US software listings in history will lead the biggest week for initial public offerings since Uber’s flotation last year, as companies cash in on the market’s hunger for technology stocks.

A dozen IPOs are set to raise $6.8bn, with half of the proceeds coming from three California tech listings, according to Refinitiv, a data provider. Snowflake, the cloud software business, will raise $2.2bn, and Unity, a video game software company, will raise $950m. Sumo Logic, another data software platform, will raise $281m.

The projected totals are based on the shares’ pricing at the midpoint of the ranges marketed to investors. 

Snowflake’s IPO will be the largest ever US software offering, eclipsing the 2007 listing of VMware and underlining the rising fortunes of enterprise software services, according to data provided by Renaissance Capital, a fund manager of IPO exchange traded funds. Unity would be the third-largest.

“Many companies are fast-forwarding their IPO plans given the strength of the market and relative valuations,” said Jim Cooney, head of equity capital markets for the Americas at Bank of America. “Historical valuations are out of the window, primarily driven by enormous innovation but also financial factors, including a zero interest rate environment and quantitative easing from the Fed.”

Software companies in the S&P 500 index of US blue-chips trade at 34 times estimated 2020 earnings, compared with 26 times for the broader index. They have outperformed the benchmark by 27 per cent this year and are among the big winners from the rise of remote working.

The stock market rally that has added nearly 50 per cent since the lows in March has lured a run of listings including the year’s two biggest deals in June, when Royalty Pharma raised $2.5bn and Warner Music attracted $2.2bn. On a year-to-date basis companies have raised more this year than any other since 2014, according to Refinitiv.

The money raised in the coming week will be the most since Uber’s $8.1bn listing pushed the amount raised in the first week of May last year to $9.6bn. JFrog, an Israeli software development company, and Vitru, a Brazilian education company, will also list this week.

Snowflake has latched on to the rise of cloud computing by allowing its users to manipulate data between multiple remote storage providers. At the midpoint of its price range, the company would command a market capitalisation of $22.3bn — more than 80 times the company’s most recent fiscal year revenues.

On Tuesday, the listing received a boost when Salesforce and Warren Buffett’s Berkshire Hathaway agreed to purchase an additional $250m of shares each alongside the IPO. 

Unity, whose technology underpins a large number of mobile video games such as Pokémon Go, is attempting an auction-like IPO process designed to give the company more power over how its shares are priced. At the high point of its price range, the company would have a market capitalisation of $11.1bn.

Both Snowflake and Unity reported rising net losses in their most recent full-year financial results.

Matthew Kennedy, senior IPO market strategist at Renaissance, said the newest listings were “trying to take advantage of the sky-high tech multiples they can get in public markets as well as timing this before the election in November”, an event that can increase market volatility.

The 21-name list is predicted to be used up for the first time since 2005

The 2020 Atlantic hurricane season is moving at such a fast clip that forecasters are just four monikers shy of needing to use the Greek alphabet to name storms—something they have had to do only once before.

There have already been 17 named storms this season, which is only half over and officially ends Nov. 30. The two latest are tropical storms Paulette and Rene. Rene is now the earliest appearance of an R-named storm on record.

“Odds are high that the 21-name Atlantic list will be used up,” said Dennis Feltgen, a spokesman for the National Hurricane Center in Miami. “If that does occur, we’ll go to the Greek alphabet, which has been used only once before, that being in 2005.”

There were 28 named storms in 2005, a year that included Hurricane Katrina. Federal forecasters have predicted there could be as many as 25 named storms this year, including up to six major hurricanes of Category 3 or higher.

An average hurricane season typically has about a dozen named storms, with roughly half becoming hurricanes. Three of those hurricanes typically have winds strong enough to rate as a major hurricane.

The longstanding practice of naming storms is thought to make them easier to identify than if they were designated by numbers or technical terms. Since 1953, the monikers used for Atlantic storms have come from alphabetical lists originated by the National Hurricane Center and now maintained by an international committee and the World Meteorological Organization. There are six lists on rotation, and the only time they change are when a storm is so bad that its name is retired, like Harvey, Irma and Maria following the 2017 season.

A La Niña climate pattern, which is marked by cooler-than-average sea surface temperatures, has developed this season and is likely contributing to the heightened hurricane activity by enabling storms to develop and intensify, the National Oceanic and Atmospheric Administration said.

The National Hurricane Center on Friday afternoon was tracking three disturbances and one tropical depression in the Atlantic region, in addition to Paulette and Rene. One of the disturbances had a 70% chance of cyclone formation in the next 48 hours.

Tropical Storm Paulette is expected to approach Bermuda as a hurricane over the weekend. The tropical depression was expected to strengthen to near hurricane intensity by early next week as it moves across the northeastern Gulf of Mexico.

Tropical Storm Rene, meanwhile, has surpassed Hurricane Rita as the earliest R-named storm on record for an Atlantic season. Rita first formed into a tropical depression on Sept. 18, 2005.

Phil Klotzbach, a research scientist with the Department of Atmospheric Science at Colorado State University, called 2020 an extremely active year in which every storm since the E-name, Edouard, has set a record for earliest appearance.

“We’re very likely to get our S storm by the weekend,” he said, noting that 2005’s S-named storm didn’t appear until early October.

Mr. Klotzbach and others said that while the season has been active in terms of the number of storms, many of them have been relatively weak and short-lived. A metric called accumulated cyclone energy, or Ace, which measures the frequency, intensity and duration of storms in a season, is roughly average for this time of year.

“We’ve had five hurricanes and they’ve on total lasted less than six days,” Mr. Klotzbach said, noting that “this hurricane season has generated as much Ace as Dorian,” a devastating hurricane that hit the Bahamas in 2019.

Matt Lanza, managing editor at Space City Weather, a blog that provides forecasts for the Houston area, said that whatever metrics are used, how individual people define this season compared with others will largely depend on how affected they are by a storm.

“We can throw a million numbers at these things,” he said, pointing to Lake Charles, La., which was hard hit by Hurricane Laura. “Ultimately, it boils down to what happens to you in your backyard.”

Bakery chain’s U.S. operator says business has been devastated by Covid-19 related closures; Aurify plans to convert locations to other restaurants

The U.S. operator of French bakery chain Maison Kayser has filed for bankruptcy with a plan to sell its New York City locations to an affiliate of restaurant operator Aurify Brands LLC, subject to better offers at auction.

The operator, Cosmoledo LLC, and its affiliates filed for chapter 11 protection Thursday in the U.S. Bankruptcy Court in New York shortly after notifying the Labor Department that it was laying off more than 700 employees that had been furloughed because of the coronavirus pandemic. Cosmoledo had operated 16 Maison Kayser locations in New York.

Aurify’s offer could be valued at as much as $10 million, according to a person familiar with the matter.

If the deal goes through, Aurify doesn’t intend to continue operating Maison Kayser but would instead take over the bakery’s former locations to expand its other chains, according to people familiar with the matter.

New York-based Aurify operates restaurant brands including the Little Beet, Melt Shop, Fields Good Chicken as well as Five Guys franchises.

The company in May agreed to buy the U.S. division of Belgium-based bakery chain Le Pain Quotidien out of bankruptcy.

Baker Eric Kayser opened the first Maison Kayser in Paris in 1996, according to the bakery chain’s website, and the chain opened its first location in New York City in 2012.

Maison Kayser’s U.S. bankruptcy highlights the financial struggles New York City’s restaurant industry has faced during the pandemic as a number of prominent bars and eateries have closed permanently.

“Many long-standing pillars of the industry have closed for good,” Cosmoledo Chief Executive José Alcalay said in a declaration filed in court. Mr. Alcalay said Maison Kayser’s business “was devastated by the global Covid-19 pandemic,” which came around the time the company was completing a restructuring of its operations.

Management initially thought Maison Kayser would reopen in June and got a $6.6 million loan under the federal Paycheck Protection Program, a financial lifeline intended to cover employee wages and avoid layoffs. But Mr. Alcalay said it became clear that the bakery couldn’t afford to keep operating under New York City’s phased reopening plan, with the loss of revenue from in-store dining and the cost of continuing takeout and delivery service.

The company didn’t use most of the PPP loan and it has sufficient money to repay it, court papers say. The government loans don’t have to be repaid if they are used primarily to avoid layoffs.

Cosmoledo, which owes more than $72.7 million in secured debt, began exploring restructuring alternatives in July and marketed its assets months before filing for chapter 11 protection. An affiliate of Aurify Brands acquired some of Cosmoledo’s senior debt before the bakery filed for bankruptcy and could use that as currency at auction to acquire Maison Kayser’s assets, court papers say.

Aurify’s offer for Maison Kayser’s assets is in the form of a stalking-horse bid, which will set the floor on a sale price for the business.

The total value of the bid is about $8.4 million, including the forgiveness of $5.4 million in debt as well as $3 million cash and the assumption of liabilities, according to the person familiar with the matter. The offer could rise in value to as much as $10 million if bid protections are approved by the bankruptcy court, this person said.

The offer is subject to competing bids. Any proposed sale of Maison Kayser’s assets must be approved by a bankruptcy judge.

U.S. Bankruptcy Judge Michael Wiles has been assigned to Cosmoledo’s case, number 20-12117. Law firm Mintz & Gold LLP is Cosmoledo’s legal counsel.