Credit Suisse’s USD 7.125% Perp jumped from 96 cents on the dollar to par. The move comes after the company raised $1.65bn via a 9.75% PerpNC5.5 AT1 last week to call back the $1.5bn 7.125% Perps. The 7.125% Perp is callable on July 29 and if not called, the coupon would reset to around 8.53% (the reference rate of 3.419% + credit spread of 510.8bp), significantly lower than the new AT1s 9.75% coupon. Whilst it did not make economic sense to refinance the bond, investors noted that choosing not to redeem the bond would have raised concerns on its ability to repay during its current phase of difficulties. Dillon Lancaster, portfolio manager at TwentyFour Asset Management said, “They probably couldn’t afford this to go wrong… I think the first decision was to do it and I think that’s a good one made by management in terms of being bondholder-friendly. And the second one was having the ability to do it, to get the book for the new deal to (refinance) the old deal”. AT1s typically get called on their first call dates and there are only a handful of instances where companies have not called back their bonds – Banco Santander in February 2019 and Deutsche Bank in 2020 are among the popular cases. To learn more about AT1s and the above two instances, click here

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