16.04.2009

Cramo issues €50 million bond

Cramo, the Finnish based international rental company has issued a €50 million hybrid bond in order to strengthen the group's capital structure and to repay existing interest-bearing debt.

The Bond’s coupon rate is 12 percent per annum and it has no maturity date, but the company said that it may call the bond after four years. The bond was sold to Finnish investors. The lead manager of the bond issue was Nordea Markets.

As a consequence of the financing arrangement, Cramo Group's equity ratio improves by around five percentage points to about 37-38 percent compared to the level of 32.4 percent at the end of 2008. The final effect of the transaction will be visible in the group's second quarter results for 2009.

Note on Hybrid Bonds

A Hybrid Bond is subordinated to the company's other debt obligations and treated as equity in the IFRS financial statements but do not give holders the right to vote at shareholder meetings and do not dilute the holdings of the current shareholders.

Vertikal Comment

Given the ongoing uncertainty in the market Cramo is wise to take this opportunity while it can, converting a portion of its debt to something akin to equity, without diluting shareholders holdings.

The downside is the high cost, in terms of interest rate. However the current concern is less about the company’s ability to service its debt and more about the risk that the debt would be pulled or not renewed, plus the cash drain of repaying capital at a time when the company is keen to conserve as much cash as possible. A sensible move all said and done.