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HYBRIDS: Hybrids: Week in Review

HYBRIDS
Credit BulletsNetherlandsPortugalCEEMEAEurozoneGermanyFranceBullet
  • EDP launched its Consent Solicitation on Monday to amend the terms on 5 Hybrid bonds.  Holders (on 4 out of 5) will be awarded 10 cents to agree to change the documentation. The request is to amend the “sliding step-up” dates of the coupon reset to align with S&P criteria and thereby regain Equity Credit. Also, in line with Moody’s, bonds will be made senior to other junior notes and thereby gain a one notch rating uplift to reflect structural subordination beneath them. The ECPPL 5.943% Call28 was most affected as the threat of a 101 Call is now off the table: this rallied 26c, outperforming the stack by up to 1.15pts. The low cash price EDPPL 1.875% Call29 may yet see holdouts but the risk of being made Subordinate could outweigh the disappointment of a low-ball 10c offer. EDP only gets 250m Equity Credit from this one bond.
  • Bayer Hybrids bounced on Friday with news that the company intends to ask permission to raise as much as 35% additional equity should litigation costs spiral. The company currently has EUR 6.5bn set aside for legal claims of which Glyphosate (RoundUp) is EUR 5.7bn. 35% of its market cap would be an additional EUR 7bn or so.  Perps rallied with BAYNGR 7% Call31 as much as 1.35pts on the news, though still down 53c on the week. The sharp bund sell-off fed into Hybrids as well.
  • Alliander was cut to Baa1/BBB by both Moody’s and S&P as the company reduced its FFO/Debt target to 11% from 15%. The agencies warned of a significant increase in Hybrid issuance. Grid companies generally need to raise a lot of finance for energy transition. ALLRNV 4.5 Call32 sold off 1.3pts but tightened 7bps vs the underlying as bunds were exceptionally weak.
  • SES was the top performer as the EU turned its attention to the need to have a non-US solution to defence. Eutelsat was the main beneficiary in terms of communications – via its OneWeb LEO offering – but SES is also involved in the IRIS2 project.  SESGFP 5.5 Call29 +2.25pts
  • The Bund sell-off had a particularly negative effect on the real estate market with bonds and equities pricing in the impact of higher refinancing rates and lower property valuations. The longer-term impact of a stronger economy is moot at this point. AroundTown 5% and 7.125% dropped 3-3.2pts; wider by 50bps and 40bps vs Bunds.
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  • EDP launched its Consent Solicitation on Monday to amend the terms on 5 Hybrid bonds.  Holders (on 4 out of 5) will be awarded 10 cents to agree to change the documentation. The request is to amend the “sliding step-up” dates of the coupon reset to align with S&P criteria and thereby regain Equity Credit. Also, in line with Moody’s, bonds will be made senior to other junior notes and thereby gain a one notch rating uplift to reflect structural subordination beneath them. The ECPPL 5.943% Call28 was most affected as the threat of a 101 Call is now off the table: this rallied 26c, outperforming the stack by up to 1.15pts. The low cash price EDPPL 1.875% Call29 may yet see holdouts but the risk of being made Subordinate could outweigh the disappointment of a low-ball 10c offer. EDP only gets 250m Equity Credit from this one bond.
  • Bayer Hybrids bounced on Friday with news that the company intends to ask permission to raise as much as 35% additional equity should litigation costs spiral. The company currently has EUR 6.5bn set aside for legal claims of which Glyphosate (RoundUp) is EUR 5.7bn. 35% of its market cap would be an additional EUR 7bn or so.  Perps rallied with BAYNGR 7% Call31 as much as 1.35pts on the news, though still down 53c on the week. The sharp bund sell-off fed into Hybrids as well.
  • Alliander was cut to Baa1/BBB by both Moody’s and S&P as the company reduced its FFO/Debt target to 11% from 15%. The agencies warned of a significant increase in Hybrid issuance. Grid companies generally need to raise a lot of finance for energy transition. ALLRNV 4.5 Call32 sold off 1.3pts but tightened 7bps vs the underlying as bunds were exceptionally weak.
  • SES was the top performer as the EU turned its attention to the need to have a non-US solution to defence. Eutelsat was the main beneficiary in terms of communications – via its OneWeb LEO offering – but SES is also involved in the IRIS2 project.  SESGFP 5.5 Call29 +2.25pts
  • The Bund sell-off had a particularly negative effect on the real estate market with bonds and equities pricing in the impact of higher refinancing rates and lower property valuations. The longer-term impact of a stronger economy is moot at this point. AroundTown 5% and 7.125% dropped 3-3.2pts; wider by 50bps and 40bps vs Bunds.