Mercury MCY020 Reset

[Grimy]

The Mercury MCY020 Capital Bond is coming up to its first reset date of 11/7/24.
Will they reset the interest rate (presently 3.6%), or will they repay?
These have a maturity date of 2049 but can be repaid at each (5 yearly) reset date.

Looking through the terms, the reset will be (unless I've read something incorrectly-which is quite possible), the benchmark interest rate at the date of reset, plus a margin of 2.1%, pus a step-up margin of 0.25%
5.5% + 2.1% + 0.25% = 7.85%

If that is the rate (or thereabouts), I'll be happy enough to continue holding.
If they repay, I'll be equally happy, as that will give me something to deploy to equities.
Either way it'll be nice to move up from the current 3.6%.....

[Grimy]

Before Mercury were Mercury, they were Mighty River Power (MRP) and in July 2014 they issued capital bonds - which became MCY010 when they changed the company name to Mercury.
These bonds had a maturity date of 11/7/2044 at a 6.9% rate and had a 5-yearly reset date - or repayment, at Mercury's discretion.
They decided to repay holders at the first reset date (July 2019) and then immediately issued the MCY020 bond at the 3.6% rate.
Depending on the type of bond and how they are treated in accounting terms, these bonds are often repaid at the 1st reset date. Whether this will be the case with these I don't know (I suspect it is, going by the repayment of the MCY010 bonds). But if they are to be repaid, we should know before too long.

[Grimy]

Mercury NZ Limited (Mercury) is considering making an offer (Offer) of up to $300 million (with the ability to accept up to an additional $50 million in oversubscriptions at Mercury’s discretion) of unsecured subordinated capital bonds (Capital Bonds) to institutional investors and New Zealand retail investors.

It is expected that full details of the Offer will be released in the week commencing 24 June 2024, when the Offer is expected to open.

Mercury has a corporate credit rating from S&P Global Ratings of BBB+ (stable outlook). The Capital Bonds are expected to be assigned an issue credit rating of BB+.

If the Offer is made and the bookbuild is successful, Mercury intends to redeem its capital bonds which are quoted on the NZX Debt Market under the ticker code MCY020 (MCY020 Bonds) on 11 July 2024 (being the first scheduled reset date).

It is expected that trading in all MCY020 Bonds will be suspended from market close on 26 June 2024. Mercury will communicate with all MCY020 bondholders directly to notify them of the potential redemption and the trading suspension (a template letter is attached to this announcement).

Mercury has appointed Forsyth Barr Limited as Arranger and Joint Lead Manager, and Bank of New Zealand and Craigs Investment Partners Limited as Joint Lead Managers in relation to the Offer.

If the Offer is made, all of the Capital Bonds will be reserved for clients of the Joint Lead Managers, NZX participants and other approved financial intermediaries. There will be no public pool.

Investors (including MCY020 bondholders) can register their interest by contacting a Joint Lead Manager or their usual financial adviser. Indications of interest will not constitute an obligation or commitment of any kind.

No money is currently being sought and no Capital Bonds can be applied for or acquired until the Offer opens. If the proposed Offer is made, it will be in accordance with the Financial Markets Conduct Act 2013 as an Offer of debt securities of the same class as existing quoted debt securities. The Capital Bonds are expected to be quoted on the NZX Debt Market.

[Grimy]

Looks like the redemption of the MCY020 bonds will happen. Will know for sure next week.

[Slartibartfast]

I'm not that familiar with bonds but did hold a fair number of Mighty River a few years back and was pleased with the returns relative to TD's. Is BB+ a decent rating for these type of security?

[Grimy]

BB+ is below 'Investment Grade' - probably best to Google it.
However, with Mercury you have a strong company in the utility sector, which is 51% Government owned and hasn't (to my knowledge) ever defaulted.
It's a bond I think you could own and sleep pretty comfortably with.
If it goes ahead, I probably won't apply for the new bonds, but that is no reflection on the bonds or Mercury.