Tuesday 05 August 2014 by Alen Golubovic Trade opportunities

New Origin Energy high yield EURO DirectBond

THIS CONTENT IS SUITABLE FOR WHOLESALE INVESTORS ONLY

FIIG has added a new high yielding EUR security to our DirectBonds list, the Origin Energy Finance Limited Capital Securities.

Key points

  1. Origin Energy Finance Limited is a wholly owned subsidiary of Origin Energy Limited. Origin Energy is an ASXlisted leading Australian integrated energy company, with diverse operations spanning across the energy supply chain, from gas exploration and production to power generation and energy retailing.
  2. The securities, which mature on 16 June 2071, represent non-voting preference shares of Origin Energy Finance and are guaranteed on a subordinated basis by Origin Energy. The effect of the guarantee when taken with the securities is to place the security holders in materially the same position as if they had held the most junior preference shares of the parent Origin Energy itself.
  3. The bonds pay fixed, semi-annual distributions at 7.875%p.a. until the first call date in June 2018. Following the first call date, the distribution rate is reset to the prevailing 5 year Euro swap rate plus a 5.00% p.a. margin, which increases by a further 0.25% in 2021. From 2023, the distribution rate is reset to the floating 3 month EURIBOR rate plus a 5.25% margin, which increases by a further 0.75% at 2038, demonstrating the high income nature of the securities.

Origin Energy Finance Limited is a wholly owned subsidiary of Origin Energy Limited. Origin Energy is an ASX20 listed leading Australian integrated energy company, with diverse operations spanning across the energy supply chain; from gas exploration and production to power generation and energy retailing. In Australia, Origin Energy has 4.3 million customer accounts and is the largest energy retailer. It has significant power generation capacity and is responsible for around 13% of Australia's electricity generation. Through a 37.5% interest in Australia Pacific LNG, Origin Energy is developing Australia's largest coal seam gas to liquefied natural gas project in Queensland.

Origin Energy is focused on the competitive segments of the energy supply chain including energy retailing, electricity generation and exploration and production. This integrated business model helps to provide a natural hedge to manage risk while also supporting stability of earnings and cash flows.

The Origin Energy Finance Limited Capital Securities pay fixed, semi-annual distributions at a rate of 7.875% per annum until the first call date in June 2018. After the first call date, the rate of return on the securities will reset to prevailing EUR swap rates, but continue to pay a high margin of 5.00% per annum over the base EUR swap rate.

This high yielding DirectBond is available to wholesale investors only with minimum parcel size of EUR100,000 and denominations of EUR1,000 thereafter. The securities suit investors looking for high income EUR instruments who are comfortable with sub-investment grade investments, with an indicative yield to the first call date of approximately 4.80%p.a. (which equates to credit margin of 430bps) and re-setting at a very high margin of 500bps over the EUR swap rate if not called at the first call date in June 2018.

Wholesale investors with a login and password can view the Origin Energy Finance Limited EUR 7.875% Capital Securities fact sheet at the following link.

Please speak to your FIIG representative if you are interested in the Origin Energy Finance Limited 7.875% 16 June 2071 EUR bond.

All prices and yields are a guide only and subject to market availability. FIIG does not make a market in these securities.

Key terms

Call date

The date prior to maturity on which a callable bond may be redeemed by the issuer. If the issuer determines there is a benefit to refinancing the issue, the bond may be redeemed on the call date, at par, or at a small premium to par depending on the terms of the call option.

Call option

An option that gives the holder the right but not the obligation to buy a security at an agreed upon price (the ‘strike price’) at any time up to an agreed upon date. The holder of the call option is hoping that the price of the underlying security will increase. The holder of the call option makes money by purchasing the security at the agreed upon strike price and selling it at the higher actual current market price if the option is exercised. In compensation for this benefit a payment (the premium) is made to the seller of the option.

Swap

A financial agreement to exchange one set of cashflows for another. A common swap in fixed income markets is an exchange of a fixed interest rate for a floating interest rate. Neither party should receive an immediate gain or loss for entering into an interest rate swap contract thus, the present value (PV) of the fixed cash flows needs to equal the present value of the expected floating rate cash flows to induce either party to contract with one another.

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