By Edward Clark
LONDON, Oct 7 (IFR) - Orange leant on sturdy demand for hybrid debt to kick off a liability management exercise on Wednesday and in keeping with recent deals, the issuer was able to get a new bond away with no concession.
As investors show an apparent unending appetite for higher yielding paper, especially when it comes from better rated issuers, the French telecom company (Baa1/BBB+/BBB+) took the opportunity to raise €700m of subordinated debt and announce a tender for outstanding hybrids in euros and sterling.
The perpetual non-call eight pushes out the issuer's outstanding euro hybrid curve, which previously extended to a 1.75% non-call March 2027, said a lead.
Orange opted for a single note because of the specific purpose of the transaction.
"This is a refinancing exercise and they have limited needs so one tranche was appropriate," said the banker on the deal.
A tender offer is out for the company's €500m 4% non-call October 2021s, £650m 5.875% non-call February 2022s and £600m 5.75% non-call April 2023s.
With the market proving continually supportive of hybrid issuance, more borrowers are looking at the instrument, said a second banker. Issuers are analysing the market either as a first time entrant in order to support balance sheets and credit ratings, or as established funders in the format looking to lock in the attractive rates and push out their maturity profile.
NO NIP, NO PROBLEM
Barclays, Citigroup, Deutsche Bank, Natixis, NatWest Markets and Societe Generale sold the new hybrid at a yield of 1.8%, flat to or through fair value estimates from bankers, which ranged from 1.8% to 1.875%.
A yield of 1.8% implies a sub/senior spread of around 167bp, relatively tight for telecoms sector hybrid issuers, according to CreditSights analysts.
"However, Orange's defensive nature leaves us more willing to take exposure to its hybrids at this level, particularly for investors looking for extra yield in the current Covid-19 market context," they wrote.
While the book size was not the blowout €6.7bn per tranche that Eni's two-leg trade saw on Tuesday, Orange's deal still mustered a respectable €3bn of orders.
The response to Orange's issue was likely lessened by the lower yield on offer compared to, for example, the Italian oil company's perpetual non-call 5.25-year which yielded 2.75%. In addition, Eni's bonds were an inaugural issue, helping to generate extra interest.
(Reporting by Edward Clark; Editing by Robert Hogg, Helene Durand)
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