Co-Op to Sell First Euro Bonds in Six Years as Bank Risk Falls

Co-Operative Bank Plc, the 140-year- old U.K. mutual lender, is selling its first bonds in euros in almost six years as the cost of insuring financial institutions’ debt fell to the lowest in 15 months.

The Markit iTraxx Financial Index of credit-default swaps linked to the senior debt of 25 banks and insurers fell two basis points to 176 at 4 p.m. in London, the lowest since July 2011. Bonds of Societe Anonyme de Gestion de Stocksde Securite, or Sagess, fell as the French refiner sold its first euro bonds since January.

Co-Op, which agreed to buy 632 branches from Lloyds Banking Group Plc in July, is considering selling senior unsecured bonds as companies rush to take advantage of a five-month rally fueled by the European Central Bank’s plans to fix the debt crisis. German Finance Minister Wolfgang Schaeuble said yesterday a Greek default “will not happen” as European Union leaders prepare for a summit in Brussels on Oct. 18-19.

“It’s been a risk-on environment for some time,” said Elisabeth Afseth, an analyst at Investec Bank Plc in London. “I’m slightly cautious as to whether it can continue.”

Bank of America Merrill Lynch EUR Corporates, Banking index shows investors demand 163 basis points more than the benchmark swap rate to buy financial bonds, the lowest since July 2011. The premium compares with 333 basis points at the end of last year, the data show.

New Bonds

The Co-Op last sold euro-denominated securities in January 2007 when it raised 25 million euros ($32 million) from floating-rate notes due 2014, according to data compiled by Bloomberg. BNP Paribas SA, JPMorgan Chase & Co., Natixis and UBS AG will manage the sale of the new bonds, said a banker, who asked not to be named before the transaction is completed.

The Manchester, England-based lender issued bonds in November when it raised 600 million pounds ($963 million) from 4.75 percent covered bonds due 2021. The notes trade at 116.7 pence on the pound, up from their 99.21 pence issue price, data compiled by Bloomberg show.

“We are looking to diversify our funding,” said Gary McDermott, a manager at Co-Op’s capital markets desk. He confirmed it is the first time since 2007 it seeks to raise cash in the euro market in the senior unsecured market though it sold mortgage-backed securities in the currency last year, he said.

Sagess sold 700 million euros of seven-year bonds to yield 50 basis points more than the swap rate. The spread on the refiner’s 4 percent notes due 2024 widened to 84 basis points from a two-week low of 82 on Oct. 12.

Corporate Debt

The cost of insuring European corporate debt fell, signaling improvement in perceptions of credit quality.

Contracts on the Markit iTraxx Crossover Index of 50 companies with mostly high-yield credit ratings dropped six basis points to 535. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings was unchanged at 127 basis points.

A basis point on a credit-default swap protecting 10 million euros of debt from default for five years is equivalent to 1,000 euros a year. Swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements.

To contact the reporter on this story: Abigail Moses in London at

To contact the editor responsible for this story: Paul Armstrong at

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