Telecom Italia Issues 750 Million Euros in Hybrid Bond Deal

Telecom Italia SpA (TIT) sold bonds combining features of debt and equity to shore up its investment-grade rating, reviving a deal put on ice last month in the run-up to the election.

Italy’s largest phone company issued 750 million euros ($970 million) of hybrid bonds priced to yield 7.875 percent and maturing in 2073, according to a person with knowledge of the transaction. The notes, which can be redeemed after five years, will carry a fixed coupon until 2018 and then reset to a variable rate every five years, said the person, who declined to be identified before the deal is complete.

Non-financial companies in Europe issued a record 11 billion euros ($14.3 billion) of hybrid securities this year, according to data compiled by Bloomberg, as companies including Telekom Austria AG (TKA) and Royal KPN NV lure investors with yields higher than those on senior notes to prop up balance sheets. Rome-based Telecom Italia held investor meetings about a potential hybrid last month before putting the plans on hold ahead of parliamentary elections.

“They made a bit of a splash talking about a hybrid and then pulled back, so there was a bit of uncertainty,” said Mark Chapman, an analyst at CreditSights Inc. in London. “It’s reassuring to see them coming back. The price is certainly designed to pique people’s interest.”

Francesca Valagussa, a spokeswoman for Telecom Italia, said she had no immediate comment about the deal.

Telecom Italia’s 1 billion euros of 4 percent notes due 2020 issued in December yield about 4.3 percent, equivalent to about 356 basis points more than German government bonds due the same month, data compiled by Bloomberg show.

Hybrid securities help boost creditworthiness in the eyes of ratings firms because holders come behind senior investors in the queue for payment in a default. Telecom Italia also has the option to defer interest in certain circumstances, according to the person with knowledge.

To contact the reporter on this story: John Glover in London at johnglover@bloomberg.net

To contact the editor responsible for this story: Paul Armstrong at parmstrong10@bloomberg.net

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