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Genesis Energy to trim $75M from capital bonds, modify terms for S and P criteria change

Thursday 30th May 2013

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Genesis Energy is modifying the terms of its $275 million of NZDX-listed hybrid bonds and trim the issue by about $75 million after Standard & Poor's changed its criteria for assessing the equity content of such instruments.

Genesis, one of the state-owned power companies slated for sale, will have the July 15, 2041, bonds halted from trading at the close tomorrow, pending a bookbuild to set a minimum interest rate and margin. The bonds currently have a coupon of 8.5 percent.

Last month S&P announced changes to the way it assesses the equity content of hybrid securities, specifically those that had been eligible to be classified as having high (up to 100 percent) equity content. Such changes affect the ratio of debt to equity on a company's balance sheet and potentially threaten its credit rating.

The effect on the Genesis bonds was to re-categorise them as having 'intermediate' equity content. That change gave Genesis the right to redeem the debt and replace it with a new issue of intermediate equity content bonds though it has opted instead to modify the existing issue so it more closely resembles intermediate equity debt.

S&P's change in the status of the debt means the bonds "are no longer a cost effective form of equity content for Genesis," it said in a statement today. The first reset date and call date will be extended to July 15 2018 from July 2016.

Genesis said the amended bonds are expected to have a credit rating of BB+, still below investment grade, from BB-. If investors seek more than the $200 million target of bonds, the offer is likely to be subject to scaling, it said.

The bonds were last quoted on the NZDX market at $1.02 per $1 face amount.

Bond Offer: Infratil Ltd, 7.2 year & 10.2 year unsecured unsubordinated bond

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