Banks Seek AT1 Replacements For Year’s Biggest Turnarounds
(Bloomberg) -- Belfius Bank SA and Landesbank Baden-Wuerttemberg are seeking fresh Additional Tier 1 capital to repay bonds that previously looked like they might break with the market’s early repayment tradition but instead became the year’s best-performing notes.
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The Belgian lender is aiming to raise €500 million ($541 million) on Monday with a bond that is callable after seven years, according to a person familiar with the matter who asked not to be identified. Initial price talk on the new deal puts the coupon at around 6.5%, although the expectation is that will be lower should demand be strong. The bank is also looking to buy back an old AT1 ahead of its first call date next year.
Similarly, LBBW has mandated banks to arrange calls with investors as it’s looking to refinance an older issue, according to a person familiar with the plans. The old AT1 had been caught in the commercial real estate storm earlier this year. It has since produced returns of more than 40%.
The issue adds to a historic year of early refinancings, when banks used early buybacks like never before to replace old AT1 bonds with new. The notes are perpetual but investors generally expect them to be repaid at the first opportunity if the cost of replacement is not punitive.
Traders had expected Belfius to be an exception early this year, when they marked its bonds well below par ahead of a first call option in 2025. That was because the rate on the previous AT1 was so low compared with what Belfius could get in the market. This led to an implied yield-to-call of 17% at the start of 2024, a clear indication that the issuer would skip the call.
The old note pays a coupon of just 3.625%, which would switch to 293.8 basis points above five-year euro swaps next April. At current swap rates, that would translate to a coupon of around 5.21%. During the course of the year, its yield-to-call has tumbled more than 10 percentage points, one of the only three benchmark-size bonds to have done so among hundreds of issues, based on data compiled by Bloomberg. LBBW’s is another.
It’s a similar situation for LBBW. Levels earlier this year precluded an early repayment but improvements in pricing have now made it possible.
A spokesperson at Belfius declined to comment, while representatives at LBBW did not immediately respond.