(Corrects third paragraph to state bond is SEC-registered and
not 144a, and in the same paragraph that it priced at T+237.5bp,
* New 15 non-call 10 structure hailed a success
* European banks tipped to sell follow-up deals
* Additional Tier 1 seen as next step for Deutsche
By Aimee Donnellan and Danielle Robinson
LONDON, May 22 (IFR) - Deutsche Bank added yet more depth to
the burgeoning bank capital market this week with the sale of a
brand new structure for Tier 2 debt that should now pave the way
for the bank to sell Additional Tier 1 bonds over the next 12
Deutsche Bank, rated A2/A+/A+ at the senior level, issued
USD1.5bn of 15-year non-call 10 subordinated notes in the Yankee
market on Tuesday, drawing almost USD5bn of orders from some 250
investors. The distribution was dominated by the US, which took
70%, while Europe accounted for 25% and Asia 5%.
The SEC-registered bond, carrying issue ratings of
Baa3/BBB+/A-, priced at Treasuries plus 237.5bp with a 4.296%
coupon at par.
"Besides the final size and pricing, we were particularly
pleased about issuing this 15NC10 callable structure with US
investors, which is a first from a European bank," said Jonathan
Blake, global head of debt issuance at Deutsche Bank.
A bullet structure would certainly have been a cheaper and
easier sell but would not have given the bank the capital
benefits it was looking for.
Deutsche Bank had considered selling a 10-year bullet, a
structure that Standard Chartered opted for in January with a
That, however, would have provided only five years of
maximum capital benefit, given that it declines by 20% per annum
for the last five years of a bond's life.
After digesting feedback from investors during the seven day
roadshow, Deutsche stuck with the planned 15NC10 format that
provides 10 years of capital treatment instead.
The strong reception is good news for the German-based
borrower, which is looking to boost its capital reserves further
with the sale of around EUR1bn of AT1 capital in the next year.
The deal also offers further proof that investors are
receptive to structures that have not yet been tried and tested.
Bankers are now confident that other issuers will be able to
tap into what is rapidly becoming a more diverse pool of
investor demand for bank capital deals, with an array of
different bonds - including high and low-trigger CoCos and
BBVA's multi-trigger AT1 - providing useful data points.
"This Deutsche Bank deal should open the way for other
subordinated Tier 2 offerings out of Europe," said one banker.
CALL ME, MAYBE
Making the 15NC10 structure palatable to investors was not
an easy task for Deutsche Bank, which tarnished its reputation
in December 2008 when it failed to call a Lower Tier 2 bond.
That action, the first by a major European bank, still sits
uncomfortably with some investors.
"Anything with a call from Deutsche Bank you can pretty much
take with a pinch of salt," said a London-based portfolio
manager, who did not participate in the transaction.
"With this kind of structure, you would want it priced to
maturity and certainly want a premium."
To compensate for this extension risk, Deutsche added an
extra 25bp-37.5bp, which pointed to fair value at around
A 10-year bullet sub debt deal would likely have come at
around 200bp, based on the view that a new Rabobank 10-year
subordinated debt deal would come at around 195bp in dollars.
Deutsche's offering performed well in the grey market,
quoted at 228bp-225bp, the tight end of the 225bp-240bp range
some US investors and bankers not involved in the deal had
calculated as fair value.
This was the first time Deutsche had come to the US for
capital securities since 2006, and for price discovery investors
were steered toward comparables like higher rated Rabobank's
3.95% 2022 10-year bullet subordinated bonds, trading at a
G-spread of 184bp, and Nordea's subordinated 10-year bullet, at
(Reporting by Aimee Donnellan; Editing by Natalie Harrison and