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High-quality issuers revive corporate hybrid market

Corporate leveraging still has a long way to run


This July, Siemens, the German power-to-healthcare conglomerate, bought the diagnostic division of Bayer in a €4.2 billion deal that places the company in a strong position in the innovative and growing field of molecular medicine.

Shareholders might yet benefit from the injection of sizeable growth business into the company’s portfolio but the credit ratings agencies, which rate Siemens very highly at AA– from Standard & Poor’s and Aa3 from Moody’s, put it on negative outlook almost as soon as the deal was announced at the end of June. They saw an asset being purchased for cash when there were questions over the durability of its earning and margins and integration risks ahead.

Siemens had just been to the US 144a market to raise $5 billion of funds through a three-year floating-rate note and five-, 10- and 20-year bonds from US debt investors eager to gain exposure to a rare and highly rated name in the debt markets. Now its rating was under threat. Its credibility was at stake.

Many companies could probably shrug off a potential downgrade from as high as AA– in exchange for a key acquisition promising future growth to shareholders.

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