Aryzta

  • 30 Sep 2010
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Rating: NR (BBB+ Credit Suisse, BBB ZKB)

Amount: Sfr325m hybrid

Maturity: Perpetual

Issue price:101.00

Fixed re-offer price:100.00

Coupon: 5% until 28 October 2014; if not called coupon steps up by 500bp to three month Libor +905bp

Call option:At par from 28 October 2014

Launched:Thursday 30 September

Payment date: October 28

Joint leads:Credit Suisse, UBS

Borrower’s comment:

The debt is to finance the acquisition of 50% of Maidstone Bakeries from Tim Horton, which will cost C$475m ($461m). We announced the acquisition in August, and it should complete by December this year.

Our covenant stated that we would not take on debt over three and half times Ebitda, and we are running at 2.96. This issue qualifies for equity treatment by the IFRS, so it is suitable for keeping the covenant.

Although some corporate issuers choose to do hybrids to protect the rating on the senior debt, this was not our thinking at all. Aryzta has little senior debt outstanding, and it is not rated by any of the international rating agencies. Obviously the Hero structure sets a precedent with specific features, but this debt is explicitly to acquire the additional stake in Maidstone, which sets it apart.

Bookrunners’ comments:

There have been a few hybrids in the market, but not many. Rabobank opened up the market with a tier one in 2008, which it followed with a retail targeted trade in 2009. Hero AG launched a retail deal in 2009, and tapped it earlier this year. This is only the second corporate hybrid in Swiss francs, but there’s potential for more.We hope issuers will see from the success of these deals that they can get hybrids done in the Swiss market, in pretty decent size.

Aryzta met investors on Tuesday in Geneva and Zurich, got plenty of positive feedback, so that we could start softsounding on Tuesday afternoon. We opened books on Wednesday for a two day bookbuilding targeted to private investors. Aryzta did its inaugural senior deal last year, but the rationale for this was specifically financing the Maidstone Bakeries acquisition. It qualifies for IFRS equity treatment, so doesn’t add to the debt burden.

There was participation from institutional accounts, but quite minimal. It was really about investors attracted by the splashy 5% coupon, but I wouldn’t call it retail. Investors had to be comfortable with the possibility that the company would not call the deal, despite the 500bp step up on top of the original 405bp launch spread.

However, as always in the Swiss franc market, private bank deals can mean that large numbers of retail investors lie behind each account. One private bank we knew about had 207 investors behind it. However, no company really wants to be paying 9% for sub capital, so there’s a pretty strong incentive to redeem the bonds after four years. Investors had to feel comfortable with the product, and some people did stay away for the sake of simplicity.

We left books open for two days on this because we wanted to give people the time to read the details carefully, and because we weren’t so worried about execution. We marketed the deal with a straightforward 5% coupon, and always planned to issue at par. Investors are looking at yields, not spreads. That’s just how deals like this are done. When we opened books, the spread was 408bp, and with a rates rally, we priced at 405bp.

There are so many variations that are possible on hybrids, and so it just takes a bit longer to get people in. It’s really about a search for yield, and once people have had chance to look at all the features that offer them protection, they’ll buy the bond.

There is a cash-cumulative dividend pusher, meaning that the company can opt to defer the coupon if it is not paying a dividend. However, to pay a dividend, the company needs to pay all coupons that have been missed. There’s also a change of control clause. If a company rated lower than BBB/Baa2 takes over Aryzta, there is also a 500bp step-up.

Aryzta is also a different proposition to Hero, although the structure was similar. Hero is a household name in Switzerland, whereas Aryzta has only been around since 2008. It’s still well known, particularly in the German areas, but different to Hero.

  • 30 Sep 2010

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