Japan-Based AEON Co. Ltd.'s Hybrid Bonds Assessed As Having Intermediate Equity Content

TOKYO (S&P Global Ratings) Sept. 14, 2016--S&P Global Ratings today said it has classified the subordinated hybrid bonds Japan-based retailer AEON Co. Ltd. (BBB+/Negative/--) will issue in September as having intermediate equity content until 2026. We regard half of the total ¥46.5 billion issuance as equity and the remaining half as debt. Characteristics of the hybrid bonds--the borrower's option to defer interest payments, sufficient permanence, and subordination in liquidation or bankruptcy proceedings--meet our standards for intermediate equity content of hybrid capital instruments. While the proposed hybrid bonds will come due in 30 years, interest to be paid on the bonds will increase 100 basis points (bps) in 2026 (year 10). Because we consider the 100 bps a material step-up under

...TOKYO (S&P Global Ratings) Sept. 14, 2016--S&P Global Ratings today said it has classified the subordinated hybrid bonds Japan-based retailer AEON Co. Ltd. (###+/Negative/--) will issue in September as having intermediate equity content until 2026. We regard half of the total Ñ46.5 billion issuance as equity and the remaining half as debt. Characteristics of the hybrid bonds--the borrower's option to defer interest payments, sufficient permanence, and subordination in liquidation or bankruptcy proceedings--meet our standards for intermediate equity content of hybrid capital instruments. While the proposed hybrid bonds will come due in 30 years, interest to be paid on the bonds will increase 100 basis points (bps) in 2026 (year 10). Because we consider the 100 bps a material step-up under our criteria, we believe the step-up gives AEON an incentive to call the bonds on the step-up date in 2026. Consequently, because the borrower has included intent-based replacement provisions that meet...

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