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Brexit or not, give me your Euros

03 March 2016 by pdonnat

British Telecommunications (BT) launched successively its €3.9bn Euro emission today on three tranches: €1.5bn 5yr, €1.1bn 7yr, €1.3bn 10yr. The 5 year tranche is paying a yield of 0.72%. BT CDS is indicated around 0.83% at market close. This is a positive basis situation i.e. the cost to insure the credit risk and the rate risk is higher than the yield provided by the bond. Flushed with Mario Draghi’s money, continental investors are investing Euro Area savings with little rewards versus the Brexit risk. BT revenues are essentially in the UK. BT is only rated BBB by Standard & Poor’s. The last paradox is that BT will use the proceeds to finance its EE acquisition from Orange and Deutsche Telecom, more precisely to pay Orange 3.4BGBP in cash (DT was paid with 12% of BT shares).