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Monday, 20 November 2017

European Investment-Grade Corporate Bond: EDF’s €6.2bn-equivalent hybrid bond

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Power surge

Electricite de France in late January celebrated a host of firsts with a triple-currency, quadruple-tranche subordinated bond that redefined the limits of the hybrid market and paved the way for a deluge of others, making 2013 the busiest year for the product on record.

Not only was EDF’s combined transaction the largest hybrid ever from a company; it also included the biggest single tranches for each of the three currencies in the format. Overall, it priced €1.25bn of perpetual non-call sevens, €1.25bn of perpetual non-call 12s, £1.25bn of PNC13s and US$3bn of 144A/Reg S PNC10s.

It was the also first hybrid from a company to have multiple euro tranches with different call dates, and the first from a European issuer to include a 144A/Reg S tranche. On top of that, it also included a tranche with the longest-ever first-call date on a hybrid deal.

“It was immensely significant in opening the market for dozens of subsequent deals,” said Brendon Moran, global co-head of corporate origination in debt capital markets at SG, which was one of the many co-leads on the deal. “It gave issuers the confidence to explore and consider the product, and made them realise that hybrids can be a valuable funding tool if used in the correct way.”

Other bankers involved agreed that EDF’s offering helped hybrids migrate from niche to mainstream. Chris Tuffey, head of syndicate at Credit Suisse in London, said it had rung in a “new era for the hybrid bond asset class globally”.

HSBC’s global head of debt syndication, Jean-Marc Mercier, said the deal had introduced “commercial innovation” to the asset class.

Despite offering subordination premiums of just 210bp–235bp, the bond garnered combined order books in excess of €23bn-equivalent, helping the utility to price €6.2bn-equivalent – comfortably above the €5bn minimum required to move the needle of a company with a €47.7bn market capitalisation.

Substantial support from across the high-grade investor spectrum also lent the notes consistent support in secondary markets. By November, they were all bid between two and six points above reoffer in cash terms, allowing subordination premiums to drop comfortably below the 200bp mark.

Investors attributed that performance, at least in part, to the deal’s timing – primarily in relation to the rest of the market, but also in the context of EDF’s own development.

EDF also took the trouble to prepare the field by taking debt-friendly measures, including non-core asset spin-offs, prior to the transaction.

“By doing this, EDF became a stellar example of how best hybrid debt can be implemented as one of many tools in a corporate financing tool kit,” said Tomas Lundquist, head of European corporate DCM at Citigroup.

Global co-ordinators and joint bookrunners for all four tranches were BNP Paribas, Citigroup and HSBC.

To see the full digital edition of the IFR Review of the Year, please click here.

To purchase printed copies or a PDF of this report, please email gloria.balbastro@thomsonreuters.com

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