Danske completes capital clean-up with Tier 2 buyback
LONDON, Oct 2 (IFR) - Danske Bank has managed to retire over 90% of a Tier 2 bond that had lost almost all of its equity content following an unexpected rating methodology U-turn from S&P in July.
Denmark's biggest financial institution offered investors a purchase price of 101.5 - a one-point premium versus mid-market secondary levels - to buy back the remainder of its USD1bn 25-year non-call five Tier 2 transaction that priced in September last year.
The liability management exercise followed the issuance of a new EUR1bn 10-year non-call five Tier 2 bond last week to replace the old ineffective notes.
The 90.9% take-up, announced on Wednesday, was slightly under the 95% one market observer had predicted, but surpassed forecasts by dealer managers Barclays, Credit Suisse, Danske Bank, HSBC, and Societe Generale.
"This was a very strong result for an LM exercise but in this business you are always battling against where the bonds have been placed, and in this case there were some Asian private banks and domestic Nordic holders that made things a bit more challenging," said a banker.
Some accounts were believed to be holding onto the bonds until their expected call in November to benefit for as long as possible from the 7.125% coupon.
The results, however, show that the majority of investors took part, even though there were grumblings about a low concession to secondary levels, and over Danske having replaced the bond with a new Tier 2 issue that offered a mere 3.875% coupon.
"There were definitely some investors that were unhappy with the new deal pricing at such a low level, but it's market value at the moment," the banker added.
Danske issued the old notes for the specific purpose of improving its RAC ratio. In July, however, S&P published its revised bank hybrid rating methodology. That has resulted in the notes' equity content being reclassified from intermediate to minimal, implying in turn that the bond would no longer be included in the bank's RAC ratio.
Danske said in July that the terms of the notes gave it the right to insert a call option at par following a change in S&P's capital recognition.
Investors that decided to pass on the any-and-all tender will now have their bonds called at par on or around November 18, some 1.5 points lower than the LM offer. (Reporting by Aimee Donnellan; Editing by Alex Chambers and Julian Baker)
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