Chorus Confirms $170M Capital Notes Offer with S&P Equity Content Approval

Offer Update and Timing

Chorus Limited has formally lodged a replacement Product Disclosure Statement (PDS) dated 23 May 2025, updating the terms and timetable for its offer of unsecured, subordinated Capital Notes. The offer, initially announced on 9 May but delayed pending confirmation from S&P Global Ratings on the equity content treatment, is now scheduled to open on 26 May and close on 29 May 2025. The Capital Notes are expected to be issued on 6 June and commence trading on the NZX Debt Market by 9 June.

Capital Notes Structure and Purpose

The offer comprises up to NZD 170 million of 31-year Capital Notes, which are unsecured, subordinated, redeemable, cumulative, and interest-bearing debt securities. Interest will be fixed for the first six years, with resets every five years thereafter, incorporating step-up margins to compensate investors for extended duration risk. The proceeds will be used primarily to refinance Crown Funding Securities maturing on 30 June 2025, which were originally issued to support the build of New Zealand’s ultra-fast broadband (UFB) network.

Credit Ratings and Equity Content

S&P Global Ratings has assigned the Capital Notes a BB+ credit rating, reflecting a moderate credit risk profile. Importantly, S&P has confirmed an "intermediate" equity content classification, treating 50% of the Capital Notes as equity for Chorus’ credit metrics until 6 June 2031, after which the equity content is expected to fall to zero. Moody’s has assigned a Baa3 rating with a similar 50% equity treatment lasting until 2046. This hybrid equity treatment is a key feature for Chorus’ capital management strategy, supporting its investment grade credit profile.

Investor Considerations and Risks

Investors should note the discretionary deferral feature allowing Chorus to defer interest payments for up to five years, a mechanism that introduces uncertainty but provides financial flexibility to the issuer. The Capital Notes rank behind all unsubordinated debt, meaning in a liquidation scenario, repayment is subordinate to senior creditors. Market risks include potential fluctuations in interest rates and liquidity constraints, as the offer is reserved for institutional and approved investors with no public pool available. Regulatory and operational risks tied to Chorus’ fibre network business also remain pertinent.

Market and Strategic Implications

This issuance reflects Chorus’ ongoing strategy to optimise its capital structure while managing refinancing obligations linked to its significant infrastructure investments. The hybrid nature of the Capital Notes, with equity credit from rating agencies, supports Chorus’ balance sheet strength amid a competitive and regulated telecommunications environment. Market participants will be watching closely for the final pricing announcement on 26 May, which will signal investor appetite and the cost of capital for Chorus going forward.