Solvay Extends Hybrid Bond Sale Record in Europe as Yields Drop

Solvay SA (SOLB) is selling euro-denominated hybrid bonds, extending record issuance of the securities as European borrowing costs fall.

The Belgian manufacturer of chemicals and plastic is marketing a total 1.2 billion euros ($1.6 billion) of undated notes that can be bought back by the company after 5 1/2 years and 10 years according to a person familiar with the matter. The average yield on bonds combining elements of debt and equity fell 18 basis points last month to a three-month low of 4.2 percent, according to Bank of America Merrill Lynch’s Global Hybrid Corporate Index.

French supermarket group Casino Guichard-Perrachon SA (CO) and Telefonica SA (TEF), Spain’s biggest phone company, are among non-financial companies selling a record 26 billion euros of hybrid bonds in Europe this year, data compiled by Bloomberg show. The notes allow companies to reduce the risk of being downgraded after issuing debt because ratings companies typically count 50 percent of the securities as equity.

“It’s surprising how much the trend has taken off this year,” said Tatjana Greil Castro, a London-based portfolio manager at Muzinich & Co. Ltd., which manages about $27 billion in credit. “From a historical perspective, companies are not paying much more to issue hybrid bonds now than they did in the past to do senior bonds, because yields have fallen so much.”

Solvay is selling 500 million euros of notes it can redeem after 10 years to yield 345 basis points more than the mid-swap rate, said the person, who asked not to be identified because they’re not authorized to speak about it. The Brussels-based company is also issuing 700 million euros of securities callable after 5 1/2 years at a spread of 300 basis points.

Hybrid bonds yield an average 293 basis points more than the swap rate, Bank of America Merrill Lynch index data show.

3M Bond Sale

Solvay said last month it planned to issue hybrid debt to strengthen its balance sheet after agreeing to acquire U.S. producer Chemlogics for $1.3 billion. The company will use the proceeds from the bond sale to repay maturing debt, said Caroline Jacobs, a spokeswoman for Solvay in Brussels.

Also in the new issue market today, 3M Co. (MMM), the U.S. maker of products from dental braces to auto parts, sold 600 million euros of eight-year notes yielding 30 basis points more than the mid-swap rate. It was the St. Paul, Minnesota-based company’s first bond sale in the currency since 2007, data compiled by Bloomberg show.

Univeg Holding BV, a Belgian fruit and vegetable supplier, is meeting investors from today to market 265 million euros of seven-year notes that can be bought back after three years, according to a person familiar with the matter. Proceeds from the sale will be used to repay existing debt and for general corporate purposes. It would be the Antwerp-based company’s first bond sale, according to data compiled by Bloomberg.

To contact the reporter on this story: Katie Linsell in Madrid at klinsell@bloomberg.net

To contact the editor responsible for this story: Shelley Smith at ssmith118@bloomberg.net

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