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| EdF €6.25 billion-equivalent perpetual hybrid notes | |
| Issuer | Electricité de France |
| Size | €1.25 billion 4.25% Perp NC7; €1.25 billion 5.375% Perp NC12; £1.25 billion 6% Perp NC13; $3 billion 5.25% Perp NC10 |
| Date | January 2013 |
| Global coordinators and joint bookrunners | BNP Paribas, Citi, HSBC |
| Bookrunners |
Euro: Banca IMI, Crédit Agricole, Natixis, Société Générale; Sterling: Barclays, Lloyds, RBS; US dollar: Bank of America Merrill Lynch, Credit Suisse, Goldman Sachs, Nomura |
| Passive bookrunners | Mitsubishi, Mizuho, Morgan Stanley, SMBC, RBC |
| return to the Deals of the Year 2013 index | |
Last year ended pretty much as it had begun. Ultra-loose central bank monetary policy prompted investors to begin 2013 on a search for yield and they ended it in much the same way. This translated into ebullient credit conditions and the beginnings of the much-touted great rotation into equity.
Just how precarious market sentiment is was starkly demonstrated in May, however, when Federal Reserve chairman Ben Bernanke suggested that it was not possible for quantitative easing to go on for ever. The reaction in the market was ugly as panicked investors dumped risky assets – particularly in emerging markets. This taper tantrum was forgotten by September, however, when the Fed opted to maintain its asset purchases at existing levels. By the time a modest reduction in QE was finally announced at the end of last year the markets barely blinked: it was a masterclass in the management of expectations.
Despite the mid-year turbulence, 2013 was a good year for the debt capital markets, particularly for high-yield and subordinated debt. The emergence of the corporate hybrid market was one of the most remarkable developments. During the year, $27 billion-worth of corporate hybrids were issued – more than the total issued over the previous 10 years combined. Corporate hybrids now account for 2.2% of the benchmark and have taken their place among the mainstream funding options available to corporate treasurers. Few in the market dispute that the surge in interest from both corporate issuers and investors in this product was down to one game-changing deal: Electricité de France’s €6.2 billion trade in January 2013.
In addition to being almost double the size of the previous corporate hybrid record-holder (General Electric’s €3.2 billion deal in 2007) this inaugural deal from the French energy company was also the largest-ever corporate hybrid tranche in euros, US dollars and sterling and achieved the lowest-ever coupon for such a deal in euros. It was also the first-ever European corporate hybrid to access the US dollar investor base via a 144a yankee tranche.
It was not just that the deal was large and hugely oversubscribed – the total order book topped €22 billion – it served as a poster child for the hybrid concept itself. Hybrid capital made a lot of sense for EdF given the long duration of its assets and lead time of its industrial projects. As a utility-type credit with high upfront capex requirements it was able both to avoid putting pressure on its credit metrics and issuing equity by opting for a hybrid instrument.
But perhaps the most important impact of this deal was the wake-up call it gave to the rest of the market. Although the hybrid market had had a good start to the year before the deal (waste and water management firm Veolia Environnement issued a €1 billion and £400 million deal at the beginning of the year) this EdF trade transformed the market, triggering a wave of hybrid deals and illustrating strong investor appetite – particularly in the US – for this type of risk. If further evidence of the deal’s success were needed it came on January 16 this year when EdF priced the equivalent of €4 billion of hybrid bonds in eight-year and 12-year euro tranches, a 15-year sterling tranche and a 10-year US dollar tranche in a follow-up deal. “These follow-up issuances demonstrate that hybrids are a structural component of EdF’s balance sheet, strengthening its capital structure through the investment cycle,” the company said.
