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Origin Energy locks in $1.16 billion in debt

Origin Energy (ASX: ORG) has announced that it has successfully priced €800 million medium term notes as part of its refinancing of existing debt facilities. The notes have an eight-year term with a coupon of 3.5% and mature in October 2021. The integrated energy company also announced that the proceeds had been swapped into Australian dollars, providing the company with A$1.16 billion.

The market has previously held reservations regarding Origin’s ability to fund its share of the massive Australia Pacific LNG Project (APLNG). The company recently announced a $7.4 billion syndicated loan facility, which this latest note issue will partially repay. These two recent financing developments should help the market become more comfortable with Origin’s ability to finance APLNG without the need to undertake a dilutive, capital raising.

Origin’s debt raising comes just days after BHP Billiton (ASX: BHP) announced it had priced a US$5 billion bond issue. The issue was priced in four tranches with US$500 million in Senior Floating Rate Notes due 2016 at 25 basis points above LIBOR, $500 million in Senior Notes due 2018 at 2.05%, US$1.5 billion in Senior Notes due 2023 at 3.85% and US$2.5 billion in Senior Notes due 2043 at 5%.

The debt will be used for general corporate purposes and will no doubt please shareholders to see the company making use of the low interest rates on offer to lock in long-term funding requirements.

Foolish takeaway

With low interest rates available both domestically and overseas, companies should be looking to lock in their long-term funding needs, as debt financing is nearly always cheaper than equity financing. The fact that large Australian corporations can currently raise debt on terms similar to or even better than the government highlights this opportunity.

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Motley Fool contributor Tim McArthur owns shares in Origin Energy.

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