Eir sold a €500 million bond on Wednesday at less than half the interest rate cost of similar debt sold three years ago, amid signs that so-called junk bonds are falling back into favour across Europe.
The telecoms group, formerly known as Eircom, increased the size of the deal from a initial plan to raise €350 million amid very strong demand from investors, according to market sources.
The new notes, which mature in 2022, were priced to yield 4.5 per cent. That compares to the 9.25 per cent coupon attached to €350 million bonds issued in 2013, which the company will refinance with the proceeds of the latest transaction. The move will deliver €17 million of annual savings.
Eir will use the additional money raised to repay €159 million of its remaining €2 billion of debt.
Bonds that are rated sub-investment grade, or junk, are beginning to benefit as the European Central Bank starts to buy investment grade corporate debt this week, as investors are forced to seek out riskier assets to generate interest income.
While euro-denominated bond sales from highly-rated companies neared record highs last month, issuance from lower-rated companies is down 48 per cent so far this year from the same period in 2015, according to Bloomberg data, as investors fret about a volatile commodity and oil prices and the prospect of the UK leaving the EU.
Fitch, one of the world's three largest corporate and sovereign ratings firms, gave Eir's new bond a B+ rating, four levels what it considers investment grade and 13 notches below its top AAA stance. The firm said Eir could be in line for an upgrade if it delivered ongoing sales and earnings improvement. Sales at the group rose for a fourth straight quarter in the first three months of the year, following years of decline.
The telecoms group had racked up €4.1 billion of gross debt through five ownership changes in 13 years before it filed the country’s biggest creditor examinership in March 2012. Its most senior, or first-lien, lenders wrote off 15 percent of their €2.4 billion net loans and took control of the company as more junior creditors lost almost all their investment.
Seperately, Eir received approval from its lenders to set up a €150 million loan facility, which further strengthens its financial resources.
"The solid execution of our strategy over the last three years has delivered a strong turnaround in the performance of our business," said Richard Moat, Eir's chief executive.
Barclays, BNP Paribas, Norway's DNB, Goldman Sachs, JP Morgan and Morgan Stanley were the joint bookrunners on the Eir deal. The deal was led by Credit Suisse and Deutsche Bank.
