(Bloomberg) -- Commerzbank AG received more than $4.2 billion in orders for a sale of Additional Tier 1 notes in the German lender’s first public foray into bond markets since UniCredit SpA signaled its interest in a takeover.
Frankfurt-based Commerzbank priced $750 million perpetual notes at a yield of 7.5%, compared to earlier discussions at around 8%, according to people familiar with the matter. This implies an order book of almost six times the deal size.
The German bank also invited holders of $1 billion of 7% AT1 notes - which have a call option in April - to tender them at 100.65 cents on the dollar, said the people, who asked not to be identified because they’re not authorized to speak publicly about the matter.
“Despite the current news situation regarding UniCredit and the increased market volatility, we consider the environment suitable for transactions,” Commerzbank said in an emailed response to questions. “The new issue met with very good investor demand.”
The sale was being handled by Commerzbank, Citigroup Inc., Goldman Sachs Group Inc., HSBC Holdings Plc and UBS Group AG, said the people.
UniCredit shocked markets last month by disclosing it had built a 21% stake in the German lender and was considering a full takeover as one option. A merger between the two banks would lead to the creation of a European banking champion, which bond investors have seen as a positive.
Commerzbank’s €500 million of 4.25% coupon AT1 securities were quoted at a 6.55% yield on Tuesday, or about 20 basis points tighter than a similar UniCredit note. This signals a reversal from a risk spread of around 64 basis-points on the German lender’s debt on Sept. 10 before its Italian rival disclosed the stake.
“Commerzbank is capitalizing here on the spread tightening it has seen following the approach from UniCredit,” said Jakub Lichwa, a portfolio manager at TwentyFour Asset Management. “Considering the tender for the existing deal, we see the new issue as a prudent approach to upcoming 2025 calls.”
AT1s are the riskiest form of bank debt, as the notes can be written off or converted into equity if a lender’s capital levels drop too low. Lenders can also skip coupon payments without triggering a default.
Among recent sales of dollar-denominated AT1 notes, Credit Agricole SA raised $1.25 billion of securities at a 6.7% yield while Turkey’s Fibabanka AS priced a $150 million transaction at a yield of 10.25%. UniCredit SpA concluded a euro-denominated AT1 deal on Sept. 9, while Bawag AG and ING Groep NV also tapped the market in the last month.
“A few banks have been going down the tender route and are pre-financing their AT1s early,” said Jennifer Ray, head of northern European banks at research firm CreditSights Inc. “A lot of of this tender activity has been in euros. However, the AT1 market, especially in US dollars, has been favorable for them - even some quite obscure names have been able to raise funding.”
--With assistance from Abhinav Ramnarayan, Hannah Benjamin-Cook and Paul Cohen.
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