Hats off to Hutch
In a year characterised by low rates, it was difficult to discern a compelling narrative on many deals beyond issuers opportunistically taking advantage of attractive funding levels.
But a debut deal by CK Hutchison Group Telecom Holdings in October was different. Yes, the low-rates environment was an important element. But this was a tale of corporate financing with a clever twist.
CK Hutchison Group Telecom Holdings was a new name to international capital markets though there was a familiar feel about it as the company is wholly owned by CK Hutchison, which has issued several bonds in Europe through another subsidiary.
Hutch's new entity was formed in July to consolidate the Hong Kong conglomerate's telecoms operations in Europe. One of those operations was Italian mobile operator Wind Tre.
As a standalone credit, Wind Tre was one of the biggest names in the European high-yield market. In 2017 it priced the biggest ever euro high-yield deal.
But the fixed-rate euro tranches in that offering had coupons of 2.625% on a five-year non-call two and 3.125% on a seven-year non-call three – low by historical standards in the high-yield market but higher than what was achievable in the investment-grade world.
After forming the new holding company, Hutch said it would refinance Wind's €10bn debt pile, initially through a bridge loan but then through a take-out and bond issuance.
The deal in October saw the new Hutch entity raise €5.15bn-equivalent through four tranches in the euro market and two in sterling.
The longest of the euro bonds, a €750m 12-year note issue, was priced with a coupon of 1.50%. On the shortest tranche, a €1.5bn four-year note, it was 0.375%.
That meant that Hutch was able to refinance high-yield Wind's liabilities through a more diversified entity at investment-grade rates. CK Hutchison Group Telecom Holdings is rated Baa1/A-/BBB+.
That rating, though, is a couple of notches below the parent's A2/A/A-, which meant that the notes looked attractive to investors in spread terms compared with Hutch's euro bonds and other European telecoms companies.
The net effect was that both Hutch and investors got what they desired. Hutch was able to refinance Wind Tre's bonds at attractive levels and build a dedicated buyer base in Europe, while investors got a nice spread from an investment-grade credit at a time when yields were getting crushed.
"The whole point was to create a new telecoms operation in Europe with European assets to issue European bonds with a European following," said Adam Bothamley, global head of debt syndicate at HSBC, which was global coordinator alongside Citigroup. “It was a whole repositioning of the credit.”
The duo were joined on the books by Banca IMI, Barclays, BNP Paribas, Credit Agricole, Deutsche Bank, Goldman Sachs and UniCredit.
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