January 2006
Hybrid debt: US issues are no longer a basket case
by Alex Chambers & Mark Brown
In November toolmaker Stanley sold a $450 million 40-year non-call five-year issue via Citigroup, Goldman and UBS called enhanced trust preferred securities (E-Trups) to finance its planned acquisitions of Facom Tools and National Manufacturing. This is just the start in the US of a theme that had already developed in Europe.
Hybrid debt in Europe is a story of constant innovation; first by banks, then insurers and finally corporates. CFOs and treasurers like hybrids because, although they are similar to equity, they are a much cheaper form of capital and offer tax deductibility.
The trigger for the takeoff of European corporate hybrid issuance during 2005 was a change of stance from the rating agencies. Standard & Poor’s more accommodative stance on allowing equity credit for debt securities in 2004 triggered a hybrid bond for France’s Casino. In February 2005 Moody’s Investors Service relaxed its position, and there followed some €5...
