Equity Credit

"He said if the gear is 20%, we'll buy back the (hybrid) debt." Total's current leverage is 27%, as shown by the results for the 4th Q4 and full year 2016 released on Thursday. Credit ratings authorities allocate equity credits to company hybrids according to various different yardsticks. For S&P, the durability of the instrument is an important part of how they see it and how much equity value they give it.

"I' m not sure if he thought through the impact of that comments, Veolia made similar assertions that called into question the durability of the tool, and S&P lifted its equity treatment," one analyst said. Last May, S&P reviewed the equity of Veolia's hybrids from interim (50%) to minimum (0%) to address the uncertainty of management's intentions to substitute or not the tool.

In October 2015, the EMEA then sent shock waves through the markets by removing the equity portion of 29 company hybrids. Procuring equity loans from credit ratings is one of the main ways in which companies take out hybrids as they reduce their key financials and indebtedness. Commenting on Total's latest hybrids issue in September 2016, S&P said that any redemption, regardless of maturity, could jeopardize the equity ratio of assets and other hybrids.

"This will cause us to challenge management's intention to receive and substitute such securities," S&P said. Deciding to buy back the bond could be a shock to an already extinct composite bond markets where volume has declined continuously over the past year. The issue of once beloved company hybrids collapsed last year as pressure from the volatility took its toll at just ?7.8 billion compared to almost ?30 billion in 2015.

Only 225 million euros of this year' sales of hybrid papers were produced by two emitters. Interhybrids have lost some of their appeal, in part because rating firms have been intercepting the markets in recent years by switching methods, with the issuer abruptly faced with an costly tool that has little value. Since the start of the issue in 2015, Totals has been the largest borrower of capital hybridization to take full benefit of the extremely low cost of financing.

They are all open-ended and currently hold 50% of the interim capital of S&P and Moody's until they are redeemable for the first time. The next call date is February 2021 for the 2.5bn 2.250% convertible, which means that Total could have costly convertible bonds to repay for another four years.

Nevertheless, the issuer cannot await the first call and try to carry out bond liabilities according to a risk manager. "This would have to be at a price higher than the place where they traded on the open stock exchange and is unlikely unless they have already sold their stake," the investors said.

Total's hybrids have performed well since Thursday's 3rd quarter news.