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Announcement:

Moody's assigns Green Bond Assessment (GBA) of GB1 to Zuercher Kantonalbank's senior unsecured green bonds

13 Apr 2018

Initial GBA assigned to a Zuercher Kantonalbank offering

New York, April 13, 2018 -- Moody's Investors Service has today assigned a Green Bond Assessment (GBA) of GB1 (Excellent) to Zuercher Kantonalbank's (ZKB, Aaa stable) initial offering of senior unsecured green bonds. ZKB is issuing its debut green bond under its existing bond program, the "Issuance Programme 2017/2018." The green bonds will constitute senior unsecured obligations and rank pari passu with other senior unsecured bonds issued under the program. At this time, management expects the issuance will likely be in the range of CHF250-400 million, with the final maturity to be determined. The bonds will launch and price the week April 16 and close the week of May 7.

Project selection for ZKB's green bond centers around the "ZKB Umweltdarlehen" environmental loan program, whose qualifying green mortgages serve as the exclusive use of proceeds for the green bond. The purpose of the green bond issuance is to refinance existing and future ZKB environmental loans.

"ZKB has a long track record of operating the environmental loan program under which the green mortgages qualify," said Matthew Kuchtyak, a Moody's lead green bond analyst. "Coupled with its stringent criteria for qualification and robust disclosure practices, this enables ZKB to clearly articulate the expected environmental benefits of the assets being refinanced with green bonds."

ASSESSMENT RATIONALE

Funds raised through the green bond will be used exclusively to refinance energy-efficient real estate under the ZKB Umweltdarlehen environmental loan program. Properties to be refinanced include private and commercial real estate as well as housing cooperatives. To meet the criteria for the ZKB Umweltdarlehen program, the assets must qualify under one of a variety of energy efficiency standards for either new construction or refurbishment (Minergie, 2000 Watt Areal or GEAK). Given the nature of the standards, the green bond proceeds will be applied to assets that qualify under the energy efficiency category of the Green Bond Principles. The ZKB Umweltdarlehen environmental loan program has been in place since 1992.

ZKB has identified 3,131 qualifying green mortgages to form the pool of eligible green assets for refinancing under the green bond program. These 3,131 qualifying loans total CHF1.162 billion, well in excess of the anticipated CHF250-400 million of initial green bonds. The bank has provided strong disclosure on the anticipated use of green bond proceeds, with breakdowns of the CHF1.162 billion of environmental loans by legal ownership, building type as well as by energy standard. The granular detail linking the use of proceeds to the various energy standards allows for an aggregate view of the benefits of the pool of green assets. While there will be no breakdown of the mortgages linked to each individual green bond issuance, the fact that all identified mortgages qualify under the environmental loan program allows for clarity that all assets are green.

To calculate the quantifiable environmental benefits of the pool of green mortgages, ZKB has worked with Minergie to devise an impact report for the portfolio of loans covered by the Minergie standard. Though this impact report only covers loans qualifying under the Minergie standard, these loans currently represent approximately 90% of the loans in the green pool.

ZKB will publish a post-issuance green bond report on its website annually, a practice that will continue over the life of the bonds. The report will provide information including the current volume of green bonds outstanding, the current volume of mortgages for energy-efficient real estate, as well as updated impact reporting.

Although the annual report will provide updated impact assessments based on the composition of the pool of green mortgages at the time of the impact report, the nature of the assets being refinanced limits certain aspects of the reporting. Given that the green bond is refinancing individual mortgages for properties, there is no way to calculate actual energy efficiency benefits of the buildings in practice. Instead, the reporting will be updated on a theoretical basis and highlight the aggregate savings the buildings with specific criteria are likely achieving versus the baseline.

Given that proceeds from the green bond issuance will be used exclusively to refinance mortgages that have already qualified for a specific energy standard, there is little risk that green bond proceeds will not be directed to green assets as intended. Furthermore, given that the size of the offering is well below the pool of identified green mortgages, there is minimal near-term risk that the balance of green bonds will exceed the balance of identified green assets.

In the future, ZKB may issue additional green bonds to refinance the green assets in the identified pool. Per its clear green bond framework, the bank has indicated that new green bonds will only be issued if the total outstanding volume of eligible mortgages exceeds the pro forma volume of green bonds after a planned new issue by at least 10%. In the event that the volume of the outstanding green bonds exceeds the total outstanding volume of eligible mortgages at any time, the unallocated proceeds from green bonds will be temporarily held in a segregated account and invested in cash and/or in green bonds of other issuers.

Established in 1870 by the Canton of Zurich, ZKB is Switzerland's fourth-largest bank and the country's largest cantonal bank, measured by its total assets of CHF164 billion as of year-end 2017.

The bank has a traditional retail and commercial banking franchise, and a very strong position in the Canton of Zurich, with shares of around 8% of the domestic mortgage loan market and around 7% of deposits as of year-end 2016. ZKB benefits from strong market positions in commercial and investment banking services for medium-sized and large corporate clients. The bank is one of the leaders in domestic investment banking operations in Switzerland, as illustrated by its position as the number one originator of Swiss franc-denominated domestic bond issuances and as the third-largest counterparty in listed equity derivatives (structured investment and leveraged products).

The principal methodology used in this analysis was Green Bonds Assessment (GBA) published in March 2016. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history.

Matthew Kuchtyak
Analyst
Infrastructure Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Jim Hempstead
MD - Utilities
Infrastructure Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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