Killer Bees: Banks And Other Corporations Still Feasting On BBB-Rated Debt

One of the byproducts of Central Banks low-rate policies (and corporate asset purchases) is the glut of BBB-rate debt (largely by energy companies such as Mexico’s PEMEX and the US energy company EPD). Banks also populate the B-rated bond list.

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Of course, one of the more interesting bond types is the contingent convertible bond or CoCo (also known as an enhanced capital note (ECN) is a fixed-income instrument that is convertible into equity if a pre-specified trigger event occurs). Banca Santander is a Spanish bank that issues CoCo bonds.

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(Bloomberg) — The market for bank capital debt was shaken last month when Banco Santander SA defied precedent and declined the option to call a bond. Keep an eye on the next securities due to be called.

Santander skipped an option to call 1.5 billion euros ($1.7 billion) of perpetual contingent-convertible notes, or CoCos. The rationale was that current market-funding costs meant it could be cheaper to extend the existing notes than redeem them and sell new ones.

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As the ECB continues to repress interest rates, incentive remains in. Europe (and the US) to continue to issue corporate bonds .. and CoCos.

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