Origin re-Notes but the risks remain
Origin Energy has lodged an amended prospectus for its Origin Notes issue with ASIC. Origin now expects to announce the margin that will be added to the 90-day bank bill rate, to determine the quarterly interest to be paid on the notes, tomorrow, when the offer will officially open.The margin was determined through an institutional bookbuild last week.The amended prospectus removes the offending clause that required a mandatory suspension of interest payments on the deeply subordinated hybrid notes if Origin's credit rating from Standard & Poor's fell below investment grade. The reference to credit ratings in an offer document aimed at retail investors has been prohibited since January 1, 2010.Now interest payments will be mandatorily suspended if Origin's interest cover ratio falls below 3.5 times on any testing date, or if Origin's leverage ratio exceeds four times on any two consecutive testing dates.The use of these tests also has the dubious benefit of avoiding the opaque nature of credit rating downgrades for retail investors. While it is possible for retail investors to calculate these ratios for themselves, to monitor Origin's performance and the risk of mandatory suspension of interest payments, only the most diligent will be able to do so, as the definition of each ratio is highly tailored and definitely not standard.Origin also changed the definition of a change-of-control event in the prospectus and added in a table that compares the key features of ordinary shares, Origin's hybrid securities and ordinary senior ranking bonds. The table is a cursory one and reveals little in the way of the tangible differences in the risk profile of each instrument. Perhaps the most interesting change made is to the timetable of the offer, with the closing date for the shareholder and general offer being brought forward by five days to December 14. Effectively, shareholders and the general public now have a week and a half less to consider whether to subscribe to the notes or not.Perhaps Origin is not expecting a big take up by shareholders and the general public of the notes. After all, the structure of the notes incorporates a level of risk the average retail investor would not perceive.