Maturity: 1 November 2066
Issue price: 99.844
Coupon: 7.2% until 1 November 2011, three month Libor plus 301.75bp thereafter
Spread at re-offer: 250bp over the 4.5% February 2036 UST
Launch date: Wednesday 18 October
Payment date: 1 November
Joint books: Credit Suisse, Goldman Sachs, Lehman Brothers, Merrill Lynch
Credit Suisse — We had a significant amount of interest mainly out of high grade accounts but also some high yield buyers as well. The deal was several times oversubscribed, with a book of about $4bn.
This is a 60 year final non-call five year with a 100bp step up in year five if not called at that time. It received Basket 'B' treatment from Moody's, intermediate equity credit from S&P and 75% equity credit from Fitch.
It has a change of control provision included. If there is a change of control and a ratings downgrade as a result then the coupon jumps 500bp.
The subordination premium was around 110bp-120bp versus a similar security (that is one that also had change of control protection). If you compare it against where they would issue a five year senior debt without change of control language then the subordination premium was about 90bp to 100bp.
We priced it at 250bp, and it is trading at 238bp.
We started whispering it in the 262.5bp-275bp area, launched guidance at 262.5bp and then launched at 250bp.
Lehman Brothers — This was an acquisition related financing which had been done in the loan format which was subsequently taken out by this.
This was a 60 non-call five structure with a fixed rate coupon with change of control language and a large step-up in coupon of 5% if there's a change of control and a rating downgrade as a result of that change.
The recent strong performance of hybrid new issues has had a self-fulfilling effect on the market for this product.
People looked at Southern Union Gas, with a 250bp spread on it, and decided it has the ability to tighten in significantly in the next couple of weeks.
We were inundated with demand from not only the traditional folks we would expect to see in these deals but also other investors. In the case of Southern Union there were insurance companies, high yield guys, high grade guys and there were dedicated preference share people that are particularly active in the preferred market. There were 190 accounts indicating interest in the transaction, which is incredible for a four-B preferred trade.
The book ended up being over $4bn. We started talking in the 255bp area and priced the deal at 250bp and it is trading at 240bp.
The fact that a four-B credit is able to get $600m done in the hybrid market is a positive sign. Earlier this year when bankers were bulled up on the hybrid capital product I think we were then more focused on the higher quality end of the spectrum, the single A insurance companies and the AA financial institutions.
We have now taken that product to the industrial, natural resources space and expanded the buyer base to include high yield accounts.
"This deal has gone extremely well. It was priced at 250bp and it's now trading in the 230s. People just love this stuff. "