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MightyRiverPower's 2044 bonds deemed 'intermediate equity' by S&P, rated BB+

MightyRiverPower's proposed issue of up to $300 million of July 2044 bonds has been rated BB+ and assessed as 'intermediate equity' by Standard & Poor's, meaning the ratings company will classify 50 percent of the interest paid as dividends.

The rating and classification come after S&P last year changed its criteria for assessing the equity content of hybrid instruments such as MightyRiverPower's subordinated capital bonds, which can be redeemed early and have interest payments deferred at the power company's discretion, and are subject to having their terms reset on July 11, 2019, and every five years thereafter.

The company's own credit rating is BBB+ and the rating on the bonds, which is below investment grade, reflects their subordination and interest deferred features, chair Joan Withers said in the prospectus.

The minimum interest rate for the first five years will be set via a bookbuild and is expected to be in a range of 6.8 percent to 7 percent. Funds raised will be used for general corporate purposes, repayment of bank debt and to extend the average term of the company's funding, it said. The offer will include a public pool, giving preference to existing shareholders in the event of scaling, MightyRiverPower said.

The company "believes that hybrid securities that are ascribed equity content such as the capital bonds are an effective capital management tool and intends to maintain such instruments as a key feature of its capital structure going forward," it said.

Forsyth Barr, ANZ New Zealand, Deutsche Craigs and Goldman Sachs are managing the sale. The offer opens on June 18 and closes July 8. The bonds are expected to be quoted on the NZX Debt Market from July 11.

The shares last traded unchanged at $2.26 and have gained 6.1 percent this year.


Comments and questions

Sounds like a bargain. A state owned company isn't going to default on its debt. Government would likely bail them out.

Sadly that is only too true after the Solid Energy mess. The Govt. should have walked from Solid Energy and allowed all banks to learn that SOEs are true companies in all senses of the word. An SOE is for all intents and purposes a private company with less than 7 shareholders. The fact the Govt. are the major (or only) shareholder is irrelevant.

Banks from a very important link in the chain protecting everybody from poorly performing companies. A bank which holds debt has a self interest in the how the business is performing and is one of the few entities in a position to get behind the boardroom doors and examine the books in true detail and the hard questions of the CEO and directors. Also when analysing whether to make a loan or not the bank critiques the finances far harder than any shareholder or stock broker possibly could simply because of the information that the bank can demand. So long as they think the taxpayer will stump up they can make risky loans to SOEs knowing their money is safe.