October 25, 2017 / 10:05 AM / a year ago

Credit Suisse no comment on repurchase option for pricey CoCo bonds

ZURICH, Oct 25 (Reuters) - Credit Suisse declined comment on whether it will exercise an option next year to repurchase so-called CoCo bonds on which it pays out around $550 million each year, after a Swiss newspaper highlighted the possibility.

The Swiss bank sold roughly 6 billion Swiss francs ($6 billion) in CoCos, short for contingent convertible bonds, to Qatar Investment Authority (QIA) and Saudi Arabian conglomerate Olayan Group in 2011 and 2012.

The bonds, which convert into equity if the bank’s core capital ratio dips below a certain level, were issued in an effort to meet tougher Swiss capital rules.

Credit Suisse pays approximately 550 million francs a year to QIA and Olayan to cover the 9 to 9.5 percent interest rates, higher borrowing costs than the bank would likely pay today.

The first optional redemption date on the bonds is October 2018, according to the bank’s previous financial disclosures. The schedule for potential repurchases was flagged by Swiss newspaper Neue Zuercher Zeitung earlier on Wednesday.

A stated plan to repurchase the CoCos would mean they no longer qualify as additional Tier 1 capital.

A repurchase which cuts the bank’s payments on such bonds could boost the bank’s efforts to cut its cost base to 17 billion francs by the end of 2018.

The CoCos convert into equity if Credit Suisse’s core capital ratio dips below 7 percent. At the end of the second quarter its ratio was 13.3 percent.

$1 = 0.9912 Swiss francs Reporting by Joshua Franklin; Editing by David Holmes

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