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by William Hoffman, IFR
Mizuho Financial Group used a US$2.5bn bond deal that was priced last Monday to address issues of global social unrest and renewed conversations about diversity in the financial world stemming from the Black Lives Matter movement.
The Japanese megabank, rated A1/A–/A–, priced a three-part diversity and inclusion bond issue.
Mizuho sold two fixed-to-floating tranches: a US$1.1bn four-year non-call three and a US$1bn 11-year non-call 10, as well as US$400m of four-year non-call three floating-rate notes.
The offering used a variety of co-managers that are owned by traditionally marginalised communities such as African Americans, women, Hispanic Americans, and veterans.
While large domestic banks have offered up D&I bonds for years, this is a first for a Japanese bank and Mizuho is hoping it encourages other Asian and European financial institutions to follow suit.
“It is great to be recognised as the first Japanese bank, and we hope that others that have the kind of platforms and reach that we do understand their responsibility to hear what the community wants, hear what their employees want and act accordingly,” said Victor Forte, head of US debt syndicate for Mizuho Americas.
The co-managers included Black-owned firms CastleOak Securities and Loop Capital, and Siebert Williams Shank & Co, the latter being owned and run by a woman, Suzanne Shank.
Among the other co-managers were service-disabled veterans firm Mischler Financial, women-owned broker dealer R Seelaus & Co, and Hispanic institution Samuel Ramirez & Co.
All six of those co-managers delivered orders for the transaction, Mizuho confirmed.
"It’s something that's been on a lot of corporations' and large financial institutions' agendas, to be more inclusive of diverse and veteran investment banks," said Matt Fijko, managing director at Siebert Williams Shank.
"Over the last couple of months and in particular the last couple of weeks, given the climate that exists out there, they want to do more."
A more diverse group of co-managers helps to broaden the investor base on the deals as well, said Ronald Quigley, head of fixed-income syndicate at Mischler Financial Group.
The large banks can bring in big players such as BlackRock or the deep pockets of hedge funds that are likely to flip the deal in the secondary market, but a D&I deal is intended to bring in a wider swathe of buy-and-hold accounts.
"Diverse broker-dealers like ours bring in endowments, foundations, commercial banks, merchant banks, RIAs [Registered Investment Advisors], bank and trust companies, and small local county pension funds," Quigley said.
"Mizuho is looking for incremental Tier 2 and Tier 3 tertiary accounts that they would normally not see and that are very sticky buy-and-hold investors who will put this paper away in their portfolios."
Japanese Supply
A broad investor base is especially helpful given the flood of Asian bank paper coming to US dollars lately.
Sumitomo Mitsui Financial Group (A1/A–/A) priced a US$3bn two-part bond issue on June 29 that attracted US$6.1bn of demand, and Nomura Holdings (Baa1/BBB+/A–) was also in the market with a two-part trade last Monday.
Before Monday's deals, Japanese banks had priced US$12.4bn of bonds in the US dollar market in 2020, up from US$7.61bn during the same period last year, according to IFR data.
Mizuho tightened spreads by 25bp–28bp on the two fixed tranches to land the four-year non-call threes at 105bp over Treasuries, which is 15bp inside where Sumitomo Mitsui priced its similarly rated 1.474% five-year a week earlier.
The four-year non-call three floater came at Libor plus 99bp and the 11-year non-call 10 at Treasuries plus 152bp.
Nomura's lower ratings led to higher spreads of 155bp over on the five-year and 200bp over on the 10-year after tightening 25bp–30bp through price progression.
Yet the strong performance from the Mizuho trade is just a secondary benefit to the inroads made for greater diversity in the industry, said Michal Katz, head of investment and corporate banking at Mizuho Americas.
“During the prior financial crisis of 2008, the efforts on diversity were put on the backburner and faded to the backdrop, which I saw firsthand as a senior woman in finance," Katz said.
"During the Covid-19 crisis ESG initiatives have not faded into the background and I do think the broader aspects around social responsibility are in focus.”
Mizuho and JP Morgan were active bookrunners for the Mizuho trade, and Bank of America and Goldman Sachs were passive bookrunners.
Nomura and Citigroup were active bookrunners for the Nomura deal.
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