By Art Patnaude
Electricite de France SA (EDF.FR) Tuesday was selling a type of
high-yielding debt that has been gaining traction with both issuers
looking to protect their credit ratings and investors clambering
for better returns amid pervading low-interest rates.
The French utility was set to sell the equivalent of 4 billion
euros ($5.3 billion) of hybrid bonds in euros and sterling, with
the deal expected to be completed later Tuesday.
Hybrid corporate bonds combine aspects of both debt and equity.
They strengthen a company's balance sheet and can be used to
support its credit rating. However, presented with higher risks
than more typical corporate bonds, investors are rewarded with a
better return.
The EUR1.25 billion, seven-year hybrid bond will price with a
yield of 4.375%. The EUR1.25 billion, 12-year debt will yield
5.5%.
The GBP1.25 billion, 13-year tranche will yield 6.125%.
Demand was strong, with order books on all three bonds totalling
around EUR13.8 billion, according to a banker working on the
deal.
Details on an EDF hybrid bond denominated in dollars are
expected this week.
Hybrid bonds are not a common type of bond for companies to
sell. However, issuance this year started off strong.
The French waste and water management company Veolia Environment
(VE) sold EUR1 billion and GBP400 million of hybrids earlier this
month. Telekom Austria (TKA.VI) has met investors about a possible
deal, and management at Royal KPN NV (KPN.AE) have said they were
looking into hybrids.
Hybrids have a rating and cost benefit for the issuer: a ratings
company will count some of the hybrid debt as equity, which may
help support a company's credit rating, while the cost will be
cheaper than equity financing.
EDF is rated Aa3 by Moody's Investors Service, and A+ by
Standard & Poor's and Fitch Ratings.
HSBC, Citigroup and BNP Paribas were lead managers on the
deal.
Write to Art Patnaude at art.patnaude@dowjones.com