Bond Buyers Move on After Santander Shock

(Bloomberg) -- Bond buyers have quickly moved on from Banco Santander SA’s surprise decision to skip the first call on a contingent-convertible note.

Svenska Handelsbanken AB amassed more than $4.5 billion of bids as it became the first bank to offer new CoCos since Santander rattled markets a couple of days ago. The Swedish lender will price the $500 million of perpetual Additional Tier 1 notes callable in five years to yield 6.25 percent, inside an initial target of about 6.75 percent, according to a person familiar with the matter, who isn’t authorized to speak publicly and asked not to be identified.

“Whilst Santander’s approach to their AT1 instruments was shambolic, it has not spooked the market,” said Paul Smillie, a credit analyst at ColumbiaThreadneedle.

No Big Deal

Santander shook the $340 billion CoCo bond market two days ago when it said it wouldn’t redeem AT1 notes next month. It was the first lender to decide against calling an AT1 at the first opportunity and the euro note initially tumbled before rebounding as investors decided the unexpected decision was unlikely to herald wider risks of call-skipping.

“It’s no big deal for the wider market which has always traded AT1s with a risk of non-call,” said Roger Francis, a credit analyst at Mizuho International Plc. “It’s a good time to bring deals.”

Santander’s 1.5 billion-euro ($1.7 billion) 6.25 percent Additional Tier 1 note moved higher for a second day to about 98.3 euro cents. European bank CoCo bond spreads have narrowed to about 442 basis points from a recent high of 519 basis points in early January, Bloomberg Barclays index data show.

Morgan Stanley, Citigroup Inc., Deutsche Bank AG, Stockholm-based Handelsbanken and UBS Group AG are arranging Handelsbanken’s sale. It comes amid a pick-up in activity in broader subordinated debt markets, with UniCredit SpA and Banco Bilbao Vizcaya Argentaria SA both offering Tier 2 deals this week.

Meanwhile, Aegon NV also said it could start a restricted Tier 1 offering “pretty quickly” following its earnings release. Still, the Dutch insurer, which first roadshowed for the offering back in October, said there was no rush to get the deal done.

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