The day of the hybrids: Is the flowering corporate market as attractive as it seems?
Corporate hybrids are booming, thanks to surging appetite from investors in Asia and Europe – and potentially even the US. These deals offer a great pick-up over anaemic senior spreads. But are buyers turning a blind eye to the risks in their hunt for yield?
Christmas came in January this year for the European corporate hybrid bond market. That was when state-controlled French electricity utility Electricité de France (EDF) raised €6.2 billion in hybrid capital, smashing the previous €3.2 billion issuance record set by General Electric in 2007. Not content with the €4 billion it raised in euros and sterling, EDF subsequently raised €2.2 billion-equivalent non-call 10 from the US dollar 144a market – a vast pool of potential investors that has thus far been largely untapped by corporate hybrid issuers. The dollar tranche was arranged by Bank of America Merrill Lynch, Credit Suisse, Goldman Sachs and Nomura, and the euros and sterling by HSBC, Citigroup and BNP Paribas.
EDF group chief financial officer Thomas Piquemal described the blowout transaction as "providing flexibility in financing our industrial strategy while achieving a lower cost of capital". In the transaction, which came hot on the heels of French environmental services firm Veolia Environnement’s €1 billion and £400 million deals earlier that month, $3 billion was issued at 5.25% for 10-year non-call; €1.25 billion at 4.25%