Spanish incumbent Telefonica is offering its first sterling-denominated hybrid perpetual subordinated securities, following a euro offering in September.
The £600m (US$966m) of 6.75% notes priced at par and Telefonica expects to close the transaction…
Spanish incumbent Telefonica is offering its first sterling-denominated hybrid perpetual subordinated securities, following a euro offering in September.
The £600m (US$966m) of 6.75% notes priced at par and Telefonica expects to close the transaction on 26 November.
BofA Merrill Lynch, Barclays, Credit Suisse, Lloyds, Mizuho, Mitsubishi UFJ, RBS and Santander are managing the sale, where demand has reportedly topped £3.5bn (US$5.6bn).
The notes have no set maturity date and Telefonica cannot redeem them until 2020. After that point the paper will accrue a fixed rate of interest equal to the applicable 5 year swap rate resettable every five years, plus a margin of: 4.458% until 2025; 4.708% between 2025 and 2040; and 5.458% after 2040.
S&P said it was rating the notes BB+ while Fitch expects to assign BBB- and Moody’s decided on Ba1. Justifying its rating Moody’s analyst Carlos Winzer said: “The Ba1 rating we have assigned to the hybrid debt is two notches below Telefonica’s senior unsecured rating of Baa2, primarily because the instrument is deeply subordinated to other debt in the company’s capital structure.”
The notes will rank below all of Telefonica’s other debt and only be senior to the operator’s ordinary share capital.
The notes are being issued by Telefonica Europe BV, the telco’s Dutch finance subsidiary.
In its ratings report Fitch said it would count 50% of the securities as equity credit as “they meet Fitch’s criteria with regards to subordination, effective maturity of at least five years, full discretion to defer coupons for at least five years and limited events of default, as well as the absence of material covenants and look-back provisions”.
Telefonica sold a €1.75bn (US$2.3bn) perpetual dual-tranche hybrid bond in September to part fund its planned acquisition of KPN’s German mobile operator E-Plus for €8.55bn.
When announcing the E-Plus deal in late August, the Spanish company said it will mainly be financed using financial instruments “which won’t have a significant impact on Telefonica’s leverage ratio”.
