Investors from across Europe came in for the first bond issue supported by the EIB's Project Bonds Initiative, which is supposed to connect the capital markets to essential infrastructure projects. Since the financial crisis destroyed most of the monoline bond insurers, and tougher capital and liquidity rules forced banks out of long term, higher risk financing, infrastructure deals have struggled to find investment.
The European Investment Bank has stepped in to remedy that, giving institutional bond market investors the confidence to finance infrastructure. On Watercraft Capital, the debut deal that priced on Thursday, the EIB provided a EUR200m subordinated liquidity facility, as well as EUR300m of senior funding.
The transaction finances Project Castor, an underwater gas storage facility off the coast of Spain, which uses an old oilfield to store enough gas for three months usage in Valencia.
Investors came in for the other EUR1.1bn of senior finance, and the broad base of the book suggests the EIB involvement has piqued the interest of the bond markets across Europe.
German investors bought 28percent, Spain 18percent, France 11percent, UK 10percent, Italy 10percent, and BeNeLux 23.25percent, though the latter includes the EIB's order. These bonds went 61percent to insurers and pension funds, 25percent to agencies (again, including the EIB), 10.2percent to fund managers, and 3.9percent to banks.
"The volume of the transaction, in a challenging market environment, is a clear testimony to what the initiative can deliver," said Adrian Zambrano, structured finance, EIB.
A banker close to the deal declined to speculate on the price benefit of the EIB's involvement, but said that the volume just would not have got done without the development bank in the picture. It boosted the credit rating by two notches above the standalone project, pushing it into investment grade (BBB+ at Fitch and BBB at S&P). Having got this deal away, it is on to the next issue.
"There are a couple of Project Bonds operations potentially to come through by the end of the year," said Zambrano. "Sponsors and advisors believe that the EIB can play a key role, however this will be a function of market-based decisions. Currently, nine projects have EIB board approval though and a larger number have been identified as potential future operations."
The 12-year amortising deal was announced on July 11, ahead of a week long roadshow organised by leads Bankia, BNP Paribas, CaixaBank, Credit Agricole-CIB, Natixis, Santander GBM, and Societe Generale.
Infrastructure specialists already had the chance to comment extensively on the EIB's proposed guarantee structure during previous discussions, but this extended marketing delivered "a more granular book than we were expecting," according to one lead.
Joint lead managers said on Wednesday that they had the bonds covered at a spread of 75bp-100bp, while investor feedback had ranged from 50bp-100bp over the Kingdom of Spain 4.65 percent July 2025. Pricing in line with guidance at 100bp suggests the momentum they found was at the wider end of the range.
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