Bertelsmann SE says it will start marketing euro-denominated hybrid bonds next week, joining borrowers seeking to exploit record-low yields spurred by the continent’s unprecedented stimulus.
Companies have sold a record 15 billion euros ($16 billion) of the notes this year in the shared currency, compared with 11 billion euros in the same period of 2014, according to data compiled by Bloomberg. Drax Group Plc, owner of Britain’s largest coal-fired power station, also plans to sell hybrid securities, according to a Standard & Poor’s report.
Hybrids are popular with borrowers because ratings firms count 50 percent of the bonds as equity, reducing their assessment of an issuer’s indebtedness and protecting credit grades. Repsol SA, Spain’s largest energy company, and German carmaker Volkswagen AG were among issuers of 7.7 billion euros of the securities last month as the European Central Bank’s quantitative-easing program stoked demand.
“Hybrid issuance has rippled out from utilities to telcos to autos,” said Patrick McCullagh, the head of European credit research at Schroder Investment Management Ltd. in London. The reason, he said, is “simple: QE.”
Moody’s Investors Service rated the proposed benchmark-sized issue at Baa3, the lowest investment grade and two levels below Bertelsmann’s senior unsecured rating of Baa1, reflecting “the deeply subordinated nature of the hybrid debt.”
Guetersloh, Germany-based Bertelsmann hired Barclays Plc, BNP Paribas SA, Goldman Sachs Group Inc., JPMorgan Chase & Co. and Royal Bank of Scotland Group Plc to organize European investor meetings starting April 13, according to a person familiar with the matter, who declined to be identified because he’s not authorized to speak.
Christian Steinhof, a spokesman for the media company, confirmed the potential bond sale but declined to give further details.