Pi Capital
Date of publication: 03 October 2019
INVESTMENT IDEAS Today we will look at two corporate debt securities as investment ideas for this week: Hewlett Packard Enterprise and Metalloinvest
Today we will look at two corporate debt securities as investment ideas for this week: Hewlett Packard Enterprise and Metalloinvest
In the “investment” securities segment, we will single out the Hewlett Packard Enterprise (HPE) Eurobonds maturing in 2035. The Issuer is an IT company created in 2015 (together with HP Inc.) as a result of the division of Hewlett-Packard Corporation into two companies. HPE has inherited business in the corporate customer segment - the company produces servers, supercomputers, storage systems, network equipment, and is also involved in the construction of cloud infrastructures. HPE employs 60 thousand people. HPE shares are traded on the NYSE with a current market cap of $ 19 billion. The senior unsecured issue in the amount of $ 748 million was placed in November 2016. The issue market is global. Six months before maturity on paper, a call option at face value (100%) is provided. There are no options for revising the coupon level (6.2% per annum). The nominal and minimum lot on paper are respectively 1 and 2 thousand dollars. Note that the release of HPE 6.2 10/15/35 looks very competitive against securities of comparable credit quality.
The ongoing process of active reduction of rates and narrowing of spreads has led to a situation where the prices of many Eurobonds have approached the levels provided for in the framework of make whole call options. Recall that this type of call allows the borrower to withdraw the issue ahead of maturity by paying the holder a certain compensation, which is expressed in the form of a pre-determined premium in yield to the base paper (for US dollars, a comparable UST maturity is used). Note that when implementing the “traditional” call option, the holder of the paper, as a rule, does not get any bonus - he is simply paid the nominal (100%) value of the bond. Last week, Metalloinvest announced its intention to fully implement the make whole call option on October 30, 2019. It should be noted that make whole call option is provided for a number of Eurobonds from Russian issuers. It is possible that some of these borrowers will want to take advantage of the current situation to refinance their debts at lower rates.

Alexey Shternshis
Joint Managing Director
Сapital Pi

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