As interest rates have increased since Deutsche PBB issued
the bond 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 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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EXPLAINER-Why markets are in uproar over a risky bank bond known
as AT1 ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
(Reporting by Carlo Giovanni Boffa and Marta Orosz; Editing by
Kirsten Donovan)
