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Thursday, 23 November 2017

European Investment-Grade Corporate Bond: EDF’s €9.1bn-equivalent multi-tranche bond

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Almost a year to the week after its previous multi-faceted fundraising exercise, Electricite de France stormed back into the markets in January, raising more than €9bn-equivalent across three currencies in hybrid and senior issues that included fixed and floating formats, as well as not one but two eye-popping century bonds.

To say that EDF demonstrated what was possible – virtually everything, as it transpired – would be something of an understatement, and the confidence it generated served others well in their quests to satisfy their own funding requirements.

Spread across just four days, the exercise kicked off with senior US dollar tranches with maturities stretching from three to 100 years.

“We initially started with three-year, five-year and 30-year bonds,” said company CFO Thomas Piquemal. “But in the current low-yield environment, feedback from investors was that there was plenty of appetite for bonds with a maturity of up to 100 years.”

In the event, EDF printed US$2.75bn of three-year fixed and US$750m of FRNs, US$1.25bn of five-year fixed, US$1bn of 30-year fixed and US$700m of 100-year fixed. The book was approaching US$11bn, with some 527 accounts taking part across the deal.

This all acted as a precursor for the major fare, at least as far as European investors were concerned, with the company then selling four hybrids and rounding things off with another century bond, this time in sterling – a £1bn offering that boasted some £4bn of orders from yield-hungry investors attracted by a yield in excess of 6%.

EDF’s European hybrids meanwhile paid record low subordination premiums over senior bonds of 155bp–185bp, compared with as much as 220bp on the hybrids issued by the company the previous January. The perpetual non-call 15-year sterling portion had the longest non-call period for any corporate hybrid deal.

The utility in addition paid only modest concessions – about 10bp–15bp at most – over those existing hybrid deals.

“It’s obvious that the cost of funding is simply incredibly favourable at the moment, and we are taking advantage of that,” said Piquemal.

In terms of the details, it sold US$1.5bn of perpetual non-call 10s, €1bn each of non-call eights and 12s and £750m of the non-call 15s. Again, demand was strong, with average subscriptions of around five times.

But aside from being a mammoth funding round, there was a concrete rationale behind the exercise.

Piquemal said proceeds would largely go towards covering the cost of new projects, such as nuclear plants Flamanville 3 in France and Hinkley Point in the UK.

“EDF is different from many of its European competitors in that we invest a lot in our future growth and have a significant capital expenditure programme,” he said.

Citigroup, Credit Suisse and SG were global co-ordinators on the US dollar senior pieces, and Citigroup and HSBC on the 100-year sterling issue. On the hybrids, Citigroup, Credit Suisse and SG performed that role, with a lengthy cast of bookrunners present across the various tranches.

To see the digital version 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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