(Bloomberg) -- Commerzbank AG has received more than $2.4 billion in orders for a sale of Additional Tier 1 notes in the German lender’s first public foray into bond markets since Italian rival UniCredit SpA signaled its interest in a takeover.
Frankfurt-based Commerzbank plans to issue perpetual US dollar bonds at a yield of around 8%, according to people familiar with the matter. The German bank is also inviting holders of $1 billion of 7% AT1 notes - which have a call option in April - to tender them at 100.65 cents in the dollar, said the people, who asked not to be identified because they’re not authorized to speak publicly about the matter.
Commerzbank will prioritize those investors who are tendering their existing securities for the new issuance, said the people. Bloomberg News has reached out to the lender for comment.
The sale is 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.
The spread between Commerzbank and Unicredit AT1s inverted after the Italian bank disclosed its holdings in the German lender.
“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.”
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.
“The possibility of a tie-up with UniCredit likely means Commerzbank will get better terms on the new deal,” said Bjorn Norrman, a senior investment analyst at Aegon Asset Management. “The timing reflects favorable market conditions and the fact that we have seen many successful dollar AT1 deals in recent weeks.”
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 raised 1.25 billion of securities at a 6.7% yield while Turkey’s Fibabanka priced a $150 million transaction at a yield of 10.25%.
--With assistance from Abhinav Ramnarayan.
(Adds book orders, analyst quotes)
©2024 Bloomberg L.P.
