(Bloomberg) -- PepsiCo Inc. is joining the charge to make green bonds more mainstream as the soda giant embarks on its debut sale of the debt.
The company is offering senior unsecured green securities, according to a filing Monday. The 30-year bonds may yield around 95 basis points above Treasuries, after initially discussing around 110, according to a person with knowledge of the matter, who asked not to be identified as the details are private.
Pepsi plans to invest the proceeds in sustainable development goals as defined by the United Nations, including eco-friendly plastics and packaging and cleaner transportation. The packaged food and beverage company already has about $34 billion of debt outstanding, but this will be its first green bond.
The company’s existing 30-year bonds due 2049 currently trade about 94 basis points wider than similarly-dated Treasuries, according to Trace bond price data. The new notes will likely price closer to those outstanding, especially given the green attributes of Monday’s debt, CreditSights analysts James Dunn and Ben Morgan said in an earlier report.
Also working in Pepsi’s favor is that it’s a well-known, highly-rated issuer that’s in the market often and people understand, said Tony Trzcinka, a portfolio manager at Impax Asset Management, which specializes in sustainable finance.
“It’s important on the corporate side for most investors that these are benchmark-type issues with seasoned issuers that are investment-grade quality,“ Trzcinka said. “It’s something that fits right in, so it’s a very easy bond to buy.”
Green bonds are a small fraction of the $5.8 trillion U.S. investment-grade corporate bond market, but increasing in popularity as companies develop initiatives to combat climate change. Over $120 billion worth of green bonds were issued in the first half of 2019, up from $85 billion in the last six months of 2018 according to BloombergNEF.
Pepsi’s rival Coca-Cola Co., issued a sustainability-linked loan in June 2015, and both companies have pledged to use more recycled plastic in their bottles over the next decade. Sustainable debt tools like green bonds are a potential way for beverage companies to fund transition activities toward a more environmentally and socially sustainable future, said Daniel Shurey, head of green finance at BloombergNEF.
“A key example would be using a green bond to finance the improvement of water and wastewater management, which is a material environmental factor for beverage companies,” Shurey said in an email Monday.
--With assistance from Michael Gambale.
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