Hedge funds short Thomson hybrid

Thomson's €500 million perpetual non-call 10-year is the first hybrid deal to offer investors leveraged buyout protection in the form of change-of-control covenants. Buyers of corporate hybrid capital risk substantial capital loss in the event of sudden, substantial credit events and persistent rumours of an LBO have surrounded the French company.

Bookrunners Barclays Capital, Citigroup, Deutsche Bank and SG inserted language stating that if the credit (rated Baa3/BBB–) is downgraded to junk following a takeover, the company will either redeem the bonds or pay investors 500 basis points extra. If the company is already sub-investment grade but is pushed one notch lower by a takeover, the same applies.

Still, there was a dispute on relative value. Some investors, mainly continental-based asset managers, believed the Euribor plus 250bp to 270bp spread indication was attractive compared with the hybrid issue from Danish oil and gas company Dong...