Tuesday 17 May 2016 by Company updates

Ferrovial’s takeover of Broadspectrum is credit positive


We expect Broadspectrum’s credit quality to improve following the finalisation of the Ferrovial takeover

On 2 May, Ferrovial’s announced that it had achieved acceptances for its takeover offer which exceeded 50%. As such, the takeover offer became unconditional. Ferrovial has now obtained in excess of 90% of acceptances which will allow it to compulsorily acquire all shares in Broadspectrum.

Ferrovial is currently rated BBB (stable) with both S&P and Fitch, which is three notches higher than Broadspectrum's BB and Ba2 corporate credit rating from S&P and Moody's respectively. We expect the stronger credit rating of Broadspectrum’s new parent will be credit positive for the Broadspectrum bond. Since the takeover went unconditional, the bonds have rallied by around $4 to $5 indicating the market agrees.

Following the takeover announcement, S&P placed Broadspectrum’s credit rating on CreditWatch Positive. If the acquisition is successful, S&P expects Broadspectrum will benefit from the ownership by a parent with a stronger credit quality and will likely upgrade its credit rating by one notch (from BB to BB+).

Meanwhile, Moody’s stated that the Ferrovial takeover would not immediately affect Broadspectrum's Ba2 corporate family rating, nor the stable outlook on the rating. Moody's is not taking any rating action at this stage given the uncertainty around the potential impact on Broadspectrum's future capital structure and financial profile.

The bonds contain a change of control investor put at $101, however since the takeover went unconditional the bond has rallied to levels above the put level. Investors looking to exit their position would therefore be better placed selling their bonds versus exercising the put.

The first optional redemption date on the bonds is on 15 May 2017 at a call price of $104.188. We expect that the bonds will be called at this first opportunity. Indicative two way pricing on the bond is currently at $106/$108 levels.

With the bonds already rallied by $4 to $5 since the takeover went unconditional, we see this as a good opportunity to take profits. If the Broadspectrum credit rating is upgraded (which is expected from S&P) then there may be further spread compression however we think this has largely already been priced in.


Please contact your FIIG representative for further details on the Broadspectrum bond. Available to wholesale investors only.