Deutsche PBB, Aareal Bank will not redeem AT1 bonds in April

Aareal Bank AG

22/03/2023 16:08

March 22 (Reuters) - Neither Germany's Deutsche
Pfandbriefbank  PBBG.DE  nor Aareal Bank  ARLG.DE  will redeem
their 300 million euro perpetual Additional Tier 1 bonds when
call options expire on April 28 and April 30, respectively.
    In the last two weeks the value of the two contingent
convertible (CoCo) bonds has tumbled, bottoming out on Monday as
Swiss authorities decided to wipe out holders of Credit Suisse's
AT1 bonds after the bank's takeover by UBS.
    "The decision has been taken after careful evaluation of
various factors, including market conditions and economic
costs," Deutsche PBB said in a statement. 
    As interest rates have increased since Deutsche PBB issued
the bond  XS180886265=1M  in 2018, the bank can expect to pay
investors more than the 5.75% it pays now when the coupon, 
calculated as 5-year euro mid-swaps plus a spread of 5.383%, 
resets on the day the call option expires.   
    Aareal Bank said that while a final decision has not yet
been taken, it is unlikely to call its perpetual AT1 bond
 DE114071919=  for a fourth time when the latest annual call
option expires, having originally delayed redemption as the
pandemic took hold in 2020. 
    CoCo bonds are hybrid instruments that stand between debt
and equity and which convert automatically into equity or are
written off if there is a capital shortfall.
    The CoCo market was rattled this week when holders of Credit
Suisse's AT1 bonds learned they will get nothing, while
shareholders, who usually rank below bondholders in terms of who
gets paid when a bank or company collapses, will receive $3.23
billion.
    


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 (Reporting by Carlo Giovanni Boffa and Marta Orosz; Editing by
Kirsten Donovan)
 ((carlogiovanni.boffa@thomsonreuters.com; +48 58 746 90 05;))