Europe news

Published: May 2, 2019

Vodafone mandate glimpses corporate finance grail

Telecoms company Vodafone stunned the markets in the first quarter with what looked to be the ultimate prize in corporate finance – a deal that at first glance seems to let the company raise significant debt without diminishing any of its existing credit or equity metrics. But while investors poured money into the deal, the ratings agencies kicked back. 

Vodafone printed a £3.44bn dual tranche due 2021 and 2022 deal on March 5 to part finance its €18.4bn acquisition of Liberty Global’s cable assets in Germany, Czech Republic, Hungary and Romania.

The deal came in the form of mandatorily convertible bonds, a type of security that has a required conversion date from debt to equity. The difference this time is that Vodafone priced the deal alongside language that suggested it would buy back the shares that came into existence when the bond converted, rather than sell the shares to the bondholders.

In its market announcement, Vodafone included the clause: “An option strategy gives Vodafone the ability to mitigate, partially or fully, any share price appreciation relative to the initial conversion price of the bonds, should it decide to execute a share buyback.”

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