Call me Maybe?: A case study on SBB's issuance of hybrid bonds

Abstract: This single-case study examines why Samhällsbyggnadsbolaget i Norden's (SBB) issued hybrid bonds, its implications, and the value this instrument generates for the corporation, shareholders, and investors. SBB's mission since the start has been to expand into one of the largest real estate companies in the Nordics, accompanied by an improvement in credit rating. This study aims to display an in-depth analysis of a real estate company's issuance of an un-traditional instrument to support its strategy and mission. We found that SBB's strategic choice of issuing hybrid bonds has proven historically advantageous, aligning with its objective of achieving a targeted credit rating and optimizing its capital structure. An investment-grade rating has been crucial for SBB, supporting its growth strategy, attracting international investors, and fulfilling investment mandates. The issuance of hybrid bonds has provided SBB with capital, higher credit ratings, the possibility of long-term financing, and equity-like features. We find support that the hybrid bonds have created value for shareholders by avoiding dilution effects and improving leverage ratios. However, the rise in interest rates has created market turbulence and uncertainties regarding the ability to call the hybrid bonds on the first call date, impacting SBB's financial profile and necessitating refinancing. On the other hand, we find that hybrid bonds still contribute to long-term financing and offer stability until the first call date in an uncertain market. However, caution is exercised due to uncertainties in high-interest environments and the company's strategy when approaching call dates. Further, hybrid bonds may become less popular due to difficulties surrounding the first call date, such as market conventions and costs. These uncertainties lead to difficulty in issuing new hybrid bonds to keep the equity ratio intact for credit rating purposes.