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Ørsted Returns to the Market After Downgrade

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Stockholm (NordSIP) –  On March 5th, Ørsted issued €750 million in green hybrid capital securities. The securities pay a 5.125% coupon, are callable after 5.75 years (NC5.75) and final maturity in 3024. Proceeds from the issuance will be allocated to investments into renewable energy projects in line with Ørsted’s Green Finance Framework, which has a second opinion with a Dark Green shading from Cicero.

The Danish renewable energy company enjoyed strong demand for its bond but is still reeling from poor performance in 2023 and a credit rating downgrade at the start of 2024.

Benign Market After Downgrade?

This is the first transaction from Ørsted since it was downgraded from BBB+ to BBB by Standard & Poors on February 7th. The downgrade followed impairments and cancellation costs worth DKK36 billion (€4.8 billion) registered in 2023, primarily from its U.S. offshore projects.

“The downgrade reflects our view of Orsted’s higher leverage on its balance sheet and our view of increased industry risk.Orsted’s credit profile has been diluted by weaker project management and tougher-than-expected local market conditions that triggered major impairments in 2023. We now view construction of offshore wind parks as riskier than in the past, notably in the U.S. In Europe, the key challenge is the effect of inflation on capex,” S&P Global Ratings stated on this occasion.

These costs led Ørsted to publish an updated strategy, focusing on less ambitious growth and capital expenditure (capex), and no dividends for three years. S&P expects will lead to a restoration of credit metrics in 2024 and 2025.

This new bond was issued to refinance Ørsted’s EUR 500 million 2.25% euro-denominated hybrid capital securities issued in 2017, with first reset date on 24 November 2024, and to proactively manage Ørsted’s hybrid capital portfolio. According to the transaction highlights, Ørsted decided to access the bond market ahead of the First Reset Date of the existing bond and “to benefit from the benign new issue conditions and refinance the instrument early.”

Strong Demand Despite Dropouts

The new bond was priced at a 99.417 discount, 259 basis points (bps) over midswaps, to provide a reoffer yield of 5.25%, 50bps over initial price thoughts and at the lower end of the revised price guidance. The final yield was 297bps over the underlying German government bond (“Bund”)  and offered a sub-senior spread of around
170bps, according to the transaction highlights. Danske Bank, Morgan Stanley, Citi, HSBC, and J.P. Morgan acted as Joint Bookrunners on this transaction.

Strong demand allowed final books to close at €3.7 billion. Geographically, UK and Ireland-based investors were dominant, purchasing 35% of the securities. Investors based in Germany, Austria and Switzerland came second with 21%, followed by those in France (19%), the Benelux (11%), the Nordics (8%), Southern Europe (4%) and other miscellaneous jurisdictions (3%). Sectorally, asset managers purchased three-quarters of the securities, leaving the rest to insurance and pension funds (11%), hedge funds (7%), banks and intermediaries (5%) and others miscellaneous investors (1%).

Nevertheless, the revised guidance was too tight for some investors, with he transaction highlights noting that “a handful of investors showed resistance and decided to drop their orders, however Ørsted was able to preserve both the quality and granularity of the orderbook as the transaction was still around 5x oversubscribed.”

 

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