From Breakingviews - Rate shock calls time on funky debt boom
Facades of luxury apartment buildings are pictured at Mitte district in Berlin, Germany, August 29, 2019. REUTERS/Axel Schmidtjust flouted a bond market convention by saying it wouldn’t repay hybrid bonds at the first opportunity. The Luxembourg-based group’s move portends a shakeout in the once vibrant market for funky debt that has equity-like characteristics.
Hybrid debt boomed during the low-rate era, with issuance topping 35 billion euros last year, according to ING. The securities typically don’t have a maturity date and are treated as similar to equity by rating agencies. But the rise in interest rates has put companies on the spot: the notes are generally designed to be repaid after only a few years to keep borrowing costs low. Yet calling bonds now means issuing new securities at a high cost, especially for weaker companies.
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