Ausnet Hybrids (BBB-/Baa3)
With the corporate action now behind Ausnet, investors can now get more conviction in the long-term credit profile going forward. Ausnet remains a solid high BBB credit, and we believe the hybrids offer excellent relative value at an AUD margin above 300bps. The hybrids compare favourably not only to other investment-grade corporate bonds but also the hybrid sector.
The Scentre hybrids (2026 call) trade with a USD margin equivalent of ~320bps.
The Ampol hybrids (2026 call) trade with an AUD margin of roughly 320bps while the 2027 call trades with an AUD margin of approximately 340bps.
However, the Ausnet hybrids have a 2025 first call (so shorter), and is a relatively safer, utility style credit compared to Scentre/Ampol respectively.
Brookfield-managed infrastructure funds (45.4%), alongside five other infrastructure investors (54.6%), will complete the acquisition of Ausnet on 16 February 2022. All approvals are in place and Ausnet will be delisted following the transaction.
The new owners will add around AUD2bn in debt via a 2-year acquisition facility (parri passu with existing debt) to Ausnet’s balance sheet, so weakening overall rating agency credit metrics. However, the owners will target a BBB+/Baa1 credit rating and so we expect credit initiatives to take place if FFO/debt metrics fall outside required S&P/Moody’s ranges.
S&P and Moody’s downgraded their ratings respectively to BBB+/Baa1 respectively. All outstanding bonds will remain outstanding – no coupon step-up will occur given the ratings were only downgraded to BBB+/Baa1 respectively.
The issuer redemption right is not triggered at BBB+/Baa1 and hybrids were downgraded to BBB-/Baa3 respectively.
Brookfield will have simple majority control of Ausnet via a contractual arrangement for decision-making with the other co-owners.
Ausnet will continue to operate three distinct regulated businesses which contribute 90% of EBITDA. These regulated businesses provide stable cashflows and have very little volatility. Unregulated activities make up around 10% of EBITDA.
This remains a solid high BBB credit.
- Subordinated with deferral (but cumulative) coupons
- Coupon of 3mBBSW + 310bps
- Issuer redemption upon a Change of Control Event
- Coupon step-up upon a Change of Control Event
- First call in October 2025, with final maturity of October 2080 (unless redeemed earlier)
- First step-up date in October 2030 (3mBBSW + 0.25bps), second step-up date in October 2045 (3mBBSW + 1bps)
- Equity credit: Moody’s (50%) and S&P (50%)
Chart 1. Relative Value
Source: IAM Capital Markets, Bloomberg
- Assumes Ausnet hybrids are redeemed at first call in October 2025
- Reference securities are from the Ausbond Credit FRN 0+ Index
Chart 2. Reference Securities