EDF to Raise More Than $5.3 Billion From Perpetual Hybrid Notes

Electricite de France SA is raising more than 4 billion euros ($5.3 billion) from its first issue of perpetual hybrid bonds in 16 years.

The state-controlled utility is pricing the subordinated benchmark bonds in euros and pounds today and dollar notes later this week, according to a person with knowledge of the sale. The offering comes as the cost of insuring against default on investment-grade debt rose, with the Markit iTraxx Europe Index of credit-default swaps increasing 1.5 basis points to 104 at 11:44 a.m. in London.

Investment-grade borrowers in Europe raised at least 26 billion euros this year, compared with more than 42 billion euros at the same point of 2012. Paris-based EDF’s deal is the fourth perpetual issue in the region this year, according to data compiled by Bloomberg.

“Demand should be very strong given the high quality issuer and it’s very cheap capital for EDF,” said Jeroen van den Broek, a strategist at ING Groep in Amsterdam. “If I were an issuer with investments planned and in a regulated industry with some economically led slowdown in demand, I would shore up my balance sheet in the same way.”

EDF is selling two tranches of debt in euros. One portion callable in 2020 will yield 4.375 percent, while the second, which can be redeemed in 2025, will have a 5.5 percent yield. The pound tranche, callable in 2026, will yield 6.125 percent, the person with knowledge of the terms said.

The notes will rank above ordinary and preference shares and contain special event clauses that could defer coupon payments, according to the person with knowledge of the deal. Fitch Ratings will grade the bonds A-, two levels below EDF.

Intesa Debt Sale

Intesa Sanpaolo SpA, Italy’s second-largest lender, is also tapping credit markets today, selling senior unsecured floating-rate notes due July 2015.

Italian utility Hera SpA is offering benchmark-sized senior unsecured bond in euros, a person with knowledge of that transaction said.

In derivatives markets, the Markit iTraxx Crossover Index of credit-default swaps on 50 companies with mostly high-yield ratings rose five basis points to 420. The Markit iTraxx Financial Index of contracts on the senior debt of banks and insurers increased four basis points to 136.

A basis point on a credit-default swap contract protecting 10 million euros of debt from default for five years is equivalent to 1,000 euros a year. Swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements.

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