Terna, the operator of Italy's high-voltage grid, sold a green bond in April 2024 that never has to be repaid. Investors asked for about four times what was on offer. The bond's terms are written as a series of dates stretching to 2050, and each one changes what Terna pays. Read in order, they explain why a bond with no maturity still has a likely end.
Key takeaways
- Terna issued a perpetual, subordinated, hybrid green bond on 4 April 2024 that Leap records at $917.75 million, to finance transmission lines connecting green projects to the grid under its Green Bond Framework.
- Terna's April 2024 hybrid green bond pays an annual fixed coupon of 4.750 percent until its first reset date on 11 April 2030, was issued at 99.745 percent of face value and cannot be called for six years.
- The coupon on Terna's hybrid green bond steps up by a further 25 basis points from 11 April 2035 and by an additional 75 basis points from 11 April 2050.
- Demand for Terna's April 2024 hybrid green bond exceeded $3 billion, about four times the amount offered, and the bond was listed on the Luxembourg Stock Exchange.
- Terna's $917.75 million hybrid bond is the largest of the five 2024 bond tranches from European utilities and grid operators that Enerdatics records as hybrids, ahead of issues by Iberdrola and TenneT.
What is a perpetual hybrid bond, and why would a grid operator issue one?
A hybrid bond sits between debt and equity. It is subordinated, which means its holders are paid after the company's ordinary lenders if things go wrong. It is perpetual, which means it has no fixed date on which the money must be returned. Because of those two features, a hybrid behaves partly like share capital on the balance sheet while still paying a fixed coupon like a bond.
For Terna, Leap's record gives the purpose plainly: the bonds help strengthen the balance sheet and diversify the investor base. The issue is part of Terna's Industrial Plan for 2024 to 2028, and the company plans more than $20 billion of investment over the next ten years. A transmission system operator, the company that owns and runs a country's high-voltage network, has to keep spending on lines and connections as new generation arrives. Hybrid capital lets it fund that spending without issuing new shares and without loading the full amount onto its senior debt.
This bond is also green. The proceeds go to transmission connection lines that link Terna's green projects across Europe to the grid, in line with its Green Bond Framework, which defines what green bond money may fund.
How do the dates in the bond change what Terna pays?
They create a timetable of incentives. The record sets it out as follows.
April 2024. Terna sells the bond at 99.745 percent of face value, slightly below par, with a fixed annual coupon of 4.750 percent. Leap records an effective rate of 4.8 percent. The bond is fixed-rate, non-convertible and sold only to institutional investors.
Six years of call protection. The bond is non-callable for six years. Terna cannot repay it early in that window, which gives investors a guaranteed run of coupons.
11 April 2030. The first reset date. The 4.750 percent coupon applies until then. After it, the rate is reset.
11 April 2035. The coupon steps up by a further 25 basis points, a quarter of a percentage point.
11 April 2050. The coupon steps up by an additional 75 basis points.
The step-ups are the point. A perpetual bond that becomes more expensive over time gives the issuer a strong reason to repay it before the costs rise. That is why investors can price a bond with no maturity date as if it will most likely end around its first reset. The 2035 and 2050 steps are, in practice, penalties for not refinancing.
How does Terna's bond compare with other 2024 hybrids?
It was the biggest and priced at the cheaper end. Iberdrola opened the European hybrid market in January 2024 with a $766.35 million perpetual hybrid at 4.871 percent. In March 2024 TenneT, the Dutch and German grid operator, priced a dual-tranche green hybrid of $601.5 million per tranche, with the 8-year tranche at 4.875 percent. Terna came in April at 4.750 percent, below both. In November 2024 Iberdrola returned with an $844.78 million hybrid green bond at 4.25 percent.
The comparison with TenneT is the closest, because both are transmission operators borrowing to connect renewable generation. TenneT's proceeds were aimed at connecting large offshore wind farms in the Netherlands and Germany, and its issue refinanced a 2017 hybrid. Terna's record describes no refinancing. Its proceeds fund new connection lines.
Enerdatics records five bond tranches described as hybrids from European utilities and grid operators in 2024: two from Iberdrola, two from TenneT and one from Terna, worth about $3.73 billion together. Terna's $917.75 million is the largest single tranche of the five and the only one from an Italian issuer. It is also the only bond financing of any kind that Enerdatics records in Italy across 2023 and 2024. Its demand of more than $3 billion was about four times the offer, close to the 3.75 times Iberdrola reported in November.
What does the deal signal for grid financing in Europe?
Grid operators are becoming regular users of hybrid capital, and investors are willing to fund them at prices close to those paid by the largest generators. Terna borrowed below Iberdrola's January coupon and below TenneT's 8-year coupon. For a regulated network business, that suggests how investors view the stability of transmission revenues compared with generation.
The pressure behind the trend is spending. Every new wind or solar farm needs a connection, and the operators that build those connections face investment plans measured in tens of billions. Terna's plan exceeds $20 billion over ten years and targets a reduction in CO2 emissions of up to 12,000 kilotonnes a year by 2040. Hybrids let that spending continue without diluting shareholders or straining senior credit metrics. For this bond, the 2030 reset is the date that matters most.
Frequently asked questions
How large is Terna's April 2024 hybrid green bond? Leap records it at $917.75 million. Demand exceeded $3 billion, about four times the amount offered.
What coupon does Terna's hybrid bond pay? A fixed 4.750 percent a year until the first reset date on 11 April 2030. The coupon then steps up by 25 basis points from 11 April 2035 and by a further 75 basis points from 11 April 2050.
What will Terna use the money for? Transmission connection lines that link Terna's green projects across Europe to the grid, in line with its Green Bond Framework.
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