BHP Billiton (rated A+/A1), an ASX-listed multinational mining company, has announced that it has successfully issued a multi-tranche, multi-currency subordinated bond which it expects to settle next week. In what has been a turbulent environment for commodities, the BHP bond issue has received strong support from the institutional market
The subordinated bonds have been issued in five tranches across three different currencies with a total issue size of about USD6.5bn:
- USD1,000m in a 60-year subordinated bond paying an initial coupon of 6.25% payable semi-annually until the first call date in five years on 22 October 2020
- USD2,250m in a 60-year subordinated bond paying an initial coupon of 6.75% payable semi-annually until the first call date in ten years on 22 October 2025
- EUR1,250m in a 60.5-year subordinated bond paying an initial coupon of 4.75% payable annually until the first call date in 5.5 years on 22 April 2021
- EUR750m in a 64-year subordinated bond paying an initial coupon of 5.625% payable annually until the first call date in 9 years on 22 October 2024
- GBP600m in a 62-year subordinated bond paying an initial coupon of 6.50% payable annually until the first call date in 7 years on 22 October 2022
The interest coupon rate will reset at the first call date and every five years thereafter at the relevant mid swap rate plus the initial credit spread and relevant step-up margins. The bonds are expected to be rated A-/A3 which is 2 notches lower than BHP’s corporate credit rating but still reflecting a strong credit profile.
The bonds are subordinated in all respects to BHP’s senior debt but rank ahead of dividends to shareholders. Deferral of interest is optional at the issuer’s option, and deferred interest will be cumulative and compounding.
The proceeds of the bonds will be used for general corporate purposes which may include repayment of BHP’s existing senior debt. From a credit rating perspective, the subordinated bonds will receive 50% equity credit from the rating agencies. With the 50% equity credit afforded by the rating agencies we expect the subordinated bonds will alleviate pressure on BHP’s credit rating as a result of the recent weakness in commodity prices.
With an expected rating of A-/A3, the subordinated bonds offer generous coupons given the high credit quality and BHP’s market leading position in the commodities sector.