Each bond tracks the issuer’s MSCI ESG rating. Their coupons step-up if this rating deteriorates, and step-down if it reverts. On 6 February, MSCI upgraded Orlen’s rating from BBB to A, triggering a coupon step-down, reversing a step-up incurred when the company was downgraded back in December 2021.
The market response was nuanced. The PLN 7y SLB experienced spread widening vis-a-vis the nearest maturity EUR bond following the rating change, but as the spread between these bonds has been volatile – and the step-down is only 10bps – it is hard to be definitive about the cause.
However, this kind of step-down event is a world first, and another indicator of the SLB market’s maturation. It also underscores how a continuously observed KPI – in this case, the MSCI rating – can incentivise issuers to make enduring improvements to their sustainability performance over the life of their outstanding bonds.
