Duke Energy has sold $2bn of equity units that cost it 7.75 percent a year, and 2.90 points of that is not interest on anything

Seven point seven five percent. That is what Duke Energy will pay each year on the $2bn of equity units it closed on Thursday, and only 4.85 of those points is interest.

The company sold 40 million units at a stated amount of $50 each, according to a Form 8-K filed at 16:06 Eastern. The underwriters took the full over-allotment: the base deal was 35 million units, and the exhibited underwriting agreement dated 10 August shows the extra 5 million as an option.

What a unit is

Three things stapled together. A contract obliging the holder to buy Duke common stock for $50 in cash, no later than 1 August 2029. A 1/40 interest in $1,000 of 4.85 percent Remarketable Senior Notes due 2032. And a 1/40 interest in $1,000 of 4.85 percent Remarketable Senior Notes due 2036.

The 7.75 percent is the sum of two payments that are not the same kind of thing. Interest on the notes accounts for 4.85 percent. The remaining 2.90 percent is a quarterly contract adjustment payment, which is what Duke pays the holder for entering into the purchase contract, and it is not interest on any principal.

The notes are the collateral

Under the Purchase Contract and Pledge Agreement, the notes are pledged to secure the holder's obligation to buy the stock. They are remarketed before the settlement date through a remarketing agent, and the proceeds go to the purchase the holder has already promised to make.

That is the design. Duke books debt now and equity in 2029, and the holder cannot use the note to walk away from the contract, because the note is the security for it.

The filing does not say what the money is for. The word proceeds does not appear in it, and no share count is given: the settlement rate lives in the pricing term sheet and the pledge agreement rather than in the item filed on Thursday.