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(Bloomberg) -- Deutsche Bank AG received around €10 billion ($10.8 billion) of investor bids for its €1.5 billion Additional Tier 1 bond on Monday, showing that demand for the high-yielding risky debt continues to run hot.
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The sale came just one business day after the German bank opted not to call a similar bond, a move that would have previously left a borrower at the risk of facing a buyers’ strike for a new debt sale.
Yet, investors’ demand for high-yielding assets meant that the bank was able to pull in the biggest order book for an AT1 sale in the single currency this year, according to data compiled by Bloomberg. It also points to changing sentiment around call skips by banks.
The perpetual bond, callable in six years, was priced with a coupon of 7.125%, compared to 7.75% in initial price discussions, according to a person familiar with the matter, who asked not to be identified. A rally in spreads has meant that investors are seeking yields in order to boost returns.
A representative for Deutsche Bank declined to comment.
“The market is more relaxed about non-call events based on economic reasons by issuers like Santander or DB,” said Marek Ozana, a portfolio manager at SEB Asset Management, referring to a skipped call by the Spanish bank in 2023.
The 7.125% coupon is the lowest paid by Deutsche Bank on AT1 debt since April 2022 while the spread of 460 basis points over mid-swaps is the tightest since 2021, according to data compiled by Bloomberg.
Deutsche Bank’s decision not to call its $1.25 billion AT1 on Friday was at least partly due to the bank standing to lose around €240 million in a redemption because of a weaker euro, according to CreditSights’ analyst Simon Adamson. The lender is still calling a separate AT1 bond of $1.5 billion of 7.5% notes on April 30, it said on Friday.
AT1s are the first layer of bank debt to absorb losses if a financial institution runs into trouble. The securities are perpetual, but investors typically expect banks to exercise call options to repay them at the earliest opportunity when the cost of doing so isn’t punitive.
Lenders not calling AT1s has irked investors in the past, such as when Banco Santander SA rattled the market with a decision not to redeem an AT1 in 2019. Still, investors have become more used to this convention being broken, and the Spanish bank’s skipped call in 2023 didn’t come as a shock as it wouldn’t have been economic for it to issue a replacement.