March 18, 2015 / 6:39 PM / 3 years ago

UPDATE 2-Repsol sells 2 billion euro hybrid bond to help fund Talisman deal

(Recasts, adds detail, analyst quote)

By Laura Benitez

LONDON, March 18 (IFR) - Spanish oil major Repsol sold a 2 billion euro ($2.1 billion) hybrid bond on Wednesday to help to pay for its purchase of Canada’s Talisman, showing continued investor appetite for subordinated debt despite weakening market conditions.

The dual issue comprised a 1 billion euro 10-year hybrid bond with a 4.5 percent coupon and a six-year euro-denominated bond with a 3.875 percent coupon, the company said. The issue was more than two times subscribed, bookrunners said.

Hybrid bonds combine both debt and equity characteristics. Australian energy company Santos Ltd abandoned a hybrid issue in December because of volatile market conditions.

Repsol started its roadshow in London on Monday via Bank of America Merrill Lynch as structuring adviser, together with Deutsche Bank and JP Morgan as global coordinators and joint bookrunners.

One portfolio analyst said that oil sector risks and a crowded market for similar corporate issues may have squeezed demand.

“It’s frustrating because there’s such a demand for yield, but the outlook for oil is murky and hybrid bonds have been underperforming at the moment, too,” the analyst said.

Repsol said at the end of 2014 that it would issue up to 5 billion euros in hybrids to fund the $12.9 billion acquisition of Talisman, which is due to close in mid-2015.

Repsol issued half of its target amount on Wednesday and plans to return to the bond market in the second half of the year to avoid overloading the market and secure the best pricing, an investor who attended Monday’s meetings said.

The company is also expected to sell 2 billion euros in senior bonds over the next two years.

Repsol is rated Baa2/BBB-/BBB at the senior level while the hybrid deal is expected to be rated Ba1/BB/BB+. ($1 = 0.9343 euros) (Writing by Sonya Dowsett; Editing by Alex Chambers and David Goodman)

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