“We are particularly grateful for the flexibility in terms of time, as we had to postpone the start of the assessment on our part, but still wanted to keep to a tight schedule. The cooperation was always to our complete satisfaction.”
In August 2022, imug rating prepared the Second Party Opinion (SPO) for the first German social community bond. The issuers, the development banks of the German states of Brandenburg, Hamburg and Rhineland-Palatinate, had placed the bond on the capital market in September. The proceeds were used to refinance projects in the area of socially subsidised affordable housing. We spoke with Bernd Wulff (Hamburgische Investitions- und Förderbank, IFB Hamburg), Jochen Armbrust (Investitions- und Strukturbank Rheinland-Pfalz, ISB) and Jork Volkmer (Investitionsbank des Landes Brandenburg, ILB) about the process, challenges and lessons learned.
imug rating: The social joint bond of your three development banks is the first of its kind on the sustainable finance market. What exactly makes the community bond special and to what extent does it differentiate itself from other bonds?
Development banks: Even independently of the social aspect, this is the first joint issue by several German credit institutions. Since each institution is only liable for its share of the bond, this only works if the business and risk model of the individual institutions is comparable. We development banks have both, and since we are guaranteed by our shareholders – the federal states of Rhineland-Palatinate, Hamburg and Brandenburg – we have modelled ourselves on the joint bonds of the federal states. To also be able to present the social financing purpose of the bond as comparably as possible, we have focused on social housing construction in the individual federal states.
imug rating: Why did you decide on a joint bond rather than individual issuances?
Development banks: Federal state development institutions are normally supported in sustainability tasks. However, our motto is that sustainability does not end at federal state borders. Affordable housing is a transfederal issue. Both the Hamburgische Investitions- und Förderbank and the Investitionsbank des Landes Brandenburg had already successfully issued social bonds with a volume of up to EUR 250 million. Investor demand for these bonds exceeded the issue volume in each case, so that investors asked for issuances in the benchmark volume. Unfortunately, this cannot be represented by the business volume of our regionally active institutes. Therefore, the idea arose to bundle the capacities of several development banks for a joint bond in benchmark volume.
imug rating: What was the market feedback on the social community bond?
Development banks: We discussed the idea of a joint bond with several banks established in the bond market in an initial market sounding and the feedback was very positive. After completing all the preliminary work, we were then able to successfully place the bond on the market in September. We were particularly pleased with the high proportion of foreign investors, whose demand has increased noticeably compared to previous issuances. There were also investors who would have liked to participate, but could not due to the lack of limits for the community construct.
imug rating: What was the process like from the idea to the issuance?
Development banks: The idea already arose in 2021. As there was no joint bond of several banks before, some technical questions had to be clarified in advance. For this purpose, cross-institutional working groups were formed to create a common perspective on legal issues as well as on settlement and regulatory reporting and to solve the challenges together. In addition, we had to come to an agreement on various topics, which are usually part of a bond issuance, but which – in the association of three development banks – first have to be coordinated. These are, for example, questions of credit rating, the selection of the syndicate banks, marketing and, with regard to the social bond, the tendering and selection of a suitable company for the preparation of the Second Party Opinion (SPO) as well as the coordination of the frameworks. Only when it was clear that the technical issues would be resolved could we commission the SPO.
imug rating: What challenges did you face in the process and how did you deal with them?
Development banks: Challenges in such a joint project are inevitably normal. The crucial thing is that we have always found good solutions. This required trusting and goal-oriented cooperation between the three development banks in many areas, including outside the capital market. This cooperation has worked wonderfully and we are grateful to all parties involved.
imug rating: You have chosen imug rating as your SPO provider. What was the decisive factor for you?
Development banks: For us, German communication and understanding of the field of activity of German development banks played a very central role. We saw both fulfilled by imug rating. Furthermore, we quickly realised that due to the differences in the promotion of social housing in our federal states, a common summarised framework and reporting would not be possible. We were therefore very pleased that imug rating could prepare both the SPOs of the individual participating development banks and a summary SPO for our joint bond.
“For us, German communication and understanding of the field of activity of German development banks played a very central role.”
imug rating: How did the cooperation with imug rating work out?
Development banks: The assessment process was very structured and comprehensible and the communication with the analysts was pleasant and goal-oriented. We are particularly grateful for the flexibility in terms of time, as we had to postpone the start of the assessment on our part, but still wanted to keep to a tight schedule. The cooperation was always to our complete satisfaction.
imug rating: What advice can you give to issuers who also want to issue a joint bond?
Development banks: We would like to respond to this with a quote of unknown origin. “Everyone said, You can’t do that! – Then someone came along who didn’t know that and just did it.”
Are you also interested in a community bond or do you need support in structuring your innovative capital market project? With our expertise in creating individual solutions, we are happy to advise you!
For more information on our Second Party Opinion on the first German social community bond, click here.
Our interview partners
Bernd Wulff, Head of Treasury Hamburgische Investitions- und Förderbank – The Hamburgische Investitions- und Förderbank (IFB Hamburg) is the central point of contact for private individuals, companies and institutions in Hamburg and provides advice on all funding offers from the city, the federal government and the EU.
Jochen Armbrust, Investitions- und Strukturbank Rheinland-Pfalz (ISB) – The Investitions- und Strukturbank Rheinland-Pfalz (ISB), based in Mainz, supports the state in the implementation of economic, structural and housing promotion.
Jork Volkmer, Treasury Investitionsbank des Landes Brandenburg (ILB) – The Investment Bank of the State of Brandenburg (ILB), based in Potsdam, supports the state and other public bodies in promoting public and private investment projects in the areas of business, labour, infrastructure and housing.