Dong 3010 Bond Sinks as S&P Rules Hit Capital: Copenhagen Mover

Dong Energy A/S’s 3010 hybrid bond sank to its lowest price on record in Copenhagen trading after the Danish utility said it will ask holders to swap into a new security at less than last week’s closing price.

The yield on the 7.75 percent junior subordinated 700 million euro ($924 million) note jumped to 7.45 percent as of 11:17 a.m. in Copenhagen, compared with 7.06 percent on June 7, according to composite Bloomberg bond-trader prices. The price fell to 103.97, its lowest on record, based on closing prices. The bond traded at 109.84 at the end of last week.

Dong Energy’s move follows an April decision by Standard & Poor’s to categorize the 3010 bond’s equity content as zero compared with 100 percent before the rating company revised its criteria. The Skaerbaek, Denmark-based company, which is calling the bond at 104 percent, had the option of early redemption at 101 percent in case of a “ratings event,” according to the note’s prospectus.

“There’s still some uncertainty as to what the final call will be, but it makes sense that the price on the bond is now moving down to 104,” Jens H. Thomsen, a credit analyst at Jyske Bank A/S in Silkeborg, Denmark, said by phone.

Investors have the option of exchanging the note into a new 500 million euro note at 104 percent of par, the company said in an e-mailed statement today. The first call date is set for June 2023, it said.

Market Standard

Terms of the new bond will be “in line with the prevailing market standard,” Dong said.

The new note will have 50 percent equity content at Fitch Ratings, Moody’s Investors Service and S&P, Dong said.

S&P said today it was affirming Dong Energy at BBB+, with a negative outlook, after the company announced its planned bond exchange.

“We believe that the proposed hybrid capital would largely mitigate the negative impact on Dong Energy’s credit measures following our re-evaluation of the equity content in the existing hybrid instrument,” S&P said. “The negative outlook reflects our view that Dong Energy could find it difficult to improve its financial risk profile to a level commensurate with the current rating over the next 12-18 months.”

Dong plans to announce the minimum size of the new issue’s spread on June 13, it said. The exchange offer opens today and closes on June 18, Dong said.

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