Baker Hughes (BHI): SMR Status Check

Research evidence excerpt

Baker Hughes (BHI): SMR Status Check

with investors, we think the EC's

current review is not top of mind for the market; and 2) with over a year before the final

(extended) outside date in the merger agreement, a near-term SMR trigger event is unlikely.

Moreover, while not unprecedented, a full block of a transaction is relatively rare, with parties

more likely to reach compromise about remedies such as divestitures, in order to secure

approval.

As a partial caveat, we acknowledge that in the event of a terminated merger, BHI's credit

quality would improve as the company would no longer be incurring significant leverage,

although the rating agencies have already signaled that the company is likely to stay within the

single-A category in the event that the deal closes. As a result, we would expect limited

tightening of non-SMR bonds if the transaction does not close.

Nonetheless, the normal (ie, upward-sloping) spread curve suggests that if the EC's review

results in a more extended regulatory process, there could be opportunities to position for a

higher SMR probability, with limited spread downside if the transaction closes as currently

expected (mid-2026, per management):

•• Sell EUR 2034s, buy USD 2033s. On a cross-currency basis, the EUR 2034s and USD 2033s

(both with SMR language) are trading at comparable spreads. However, the EUR 2034s are

quoted slightly above par, while the USD 2033s are quoted around $97.5. In our view, a higher

SMR $101 probability could trigger divergence between the two securities, while even in the

event of a smooth merger completion, we would expect the USD 2033s to outperform slightly

given their similar spread and slightly shorter duration.

•• Sell 4.486% non-SMR 2030s, buy 4.35% SMR 2031s. Although the roughly 15bp spread