Yield demand fuels bumper book for Repsol hybrid

3 min read
Ed Clark

Repsol has become the second corporate to issue hybrid bonds in just over a week as a strong market tone has given fresh impetus to the asset class.

Renewed interest in riskier areas of the credit markets has been evident for a few weeks with the return of supply in the emerging markets, high-yield and bank capital sectors.

While issuance of corporate hybrids has been slower to return, the size of the order book for Repsol's deal today and Swiss perfume maker Firmenich's market reopener last week suggest that investors are pleased to see the product back.

Demand for the Spanish oil company's dual-tranche deal, comprising €750m perpetual non-call six and €750m perpetual non-call 8.5-year notes, reached €11.5bn.

Last week, Firmenich got a €4.3bn book for a €750m perp non-call 5.25-year bond.

With fears about the impact of the coronavirus pandemic subsiding - in terms of assessing credit risk, at least - investors are becoming more confident in buying higher-beta products.

"The market feels good, there has been an uptick in demand for hybrids and the issues around oil have already been baked into the secondaries," said a lead.

"They had to start refinancing the non-call six, so, timing-wise, six to 12 months before is when you look at refinancing hybrids, just because of that additional volatility."

Proceeds will fund the buyback of Repsol's €1bn 3.875% perpetual, which can be called next March.

Repsol was initially seeking to raise €1bn, according to the lead, but demand was such that it upsized to €1.5bn.

Leads started marketing the two bonds at 4.5% area and 5.125% area but were able to revise down to final yields of 3.75% and 4.25%. The new issue is expected to be rated Ba1/BB+/BB+.


The Repsol and Firmenich deals are the first corporate hybrids since February.

"It took such a while for them to emerge because those issuers that needed them couldn't get them because the cost would have been so high, and those that could have got them but didn't need them didn't want to pay the elevated price," said a banker away

"Now, as things have stabilised and the cost has come down, we are seeing those borrowers that wanted to issue come to the market."

The average yield on the iBoxx euro non-financials subordinated index has fallen from nearly 5.40% in March to 2.73%, according to Refinitiv data.

The Firmenich bond, which was printed on May 27 at a yield of 3.875%, is now bid at 3.448%, according to Tradeweb.

Bankers expect more supply and possibly more new names too. Firmenich, for example, was a debut issuer in the product. That deal was linked to an acquisition financing. But other new entrants might seek to issue subordinated debt to repair balance sheets fractured by the pandemic.

BNP Paribas, Bank of America, Citigroup and HSBC were active bookrunners on Repsol, alongside BBVA, JP Morgan, Goldman Sachs, Mizuho, MUFG and NatWest Markets.