Key takeaways from the NeuGroup for Capital Markets 2020 H2 meeting, sponsored by Deutsche Bank.
By Joseph Neu
Bond issues are the new RCF. Discussion on the topic of how to divvy up extra liquidity in terms of cash on the balance sheet vs. a bigger revolving credit facility (RCF) yielded the recommendation that most firms with the ratings capacity are better off issuing bonds and parking cash on their balance sheet.
- The bond market is supportive, and bank credit pricing is going to be more stingy unless, ironically, it’s paired with bond economics and the promise of a substantial wallet to pay for it.
Sustainability-linked finance about to rocket. Finding qualifying use of proceeds limits green bond and related issuance that require direct linkage on how the funds raised are used.
- Sustainability-linked finance rewards firms for meeting smart targets (that are scientifically measurable) across the full ESG spectrum, which will increasingly include diversity and inclusion (D&I) and social impact goals.
- This is why a major asset manager in the fixed income space is excited about sustainability-linked finance products as an asset class and a $10 trillion market megatrend.
Six major ESG rating agencies? In a meeting where capital markets professionals from top corporate issuers expressed frustration about the pricing practices of credit rating agencies, we learned that the top three are about to be joined by three or four more.
- This will be the result of ESG scores becoming both fully mainstream and integrated into credit ratings. Moody’s, S&P and Fitch are rapidly growing and acquiring ESG scoring specialists in anticipation of this outcome.
- ESG scorers including MSCI, Sustainalytics, Bloomberg and ISS are vying to join them in the top tier of raters.