Bank additional tier-1 bonds, including those of Credit Suisse, are attracting the attention of large hedge funds and distressed debt investors, who are buying them up at discount prices, according to a report by Reuters.
Bank additional tier-1 (AT1) bonds, including those of Credit Suisse, are attracting the attention of large hedge funds and distressed debt investors, who are buying them up at discount prices, according to a report by Reuters.
Credit Suisse’s AT-1s were written down to zero as part of rival UBS’s rescue deal for the stricken Swiss bank, and are now trading at about 0.03 cents on the dollar, with several Reuters sources saying that provides an opportunity for hedge funds prepared to gamble that the merger of UBS/Credit Suisse might not proceed or that the Swiss regulator Finma might even reverse its decision.
Finma’s controversial move to wipe out $17.35 billion of Credit Suisse’s AT1 bonds – instruments that would normally rank higher than shares in the capital structure of a bank – has angered bondholders, with some reportedly considering legal action, as well as sending the value of AT1 bonds issued by other European banks into free-fall on Monday.
And those cut-price AT1s are now providing an additional investment option, according to Louis Gargour, the chief investment officer and managing partner of $550 million hedge fund LNG Capital.
“The most compelling trade is other large independent well-capitalised European institutions such as Deutsche Bank, Societe Generale, and Intesa where you can achieve significant long-term yields by taking the view that AT1s will not be converted into equity,” he told Reuters.