Bancolombia’s Dollar Bonds Plummet After Cut to Junk by Moody’s

Bancolombia SA’s subordinated dollar bonds plunged after Moody’s Investors Service reduced its rating on the debt to junk status, citing global banking regulations that increase capital requirements.

The yield on Bancolombia’s dollar bonds due 2022 rose 27 basis points, or 0.27 percentage point, to 4.95 percent at 3:36 p.m. in Bogota. That’s its biggest increase since the securities were issued in September.

Moody’s said in a statement yesterday it reduced the rating on foreign currency subordinated debt issued by Colombia’s biggest bank to Ba1, or one level below investment grade, from Baa3 with a stable outlook. The cut comes as international guidelines established by Basel Committee on Banking Supervision expanded the range of easily sold assets banks must have on hand to weather a month of market turmoil.

“The strong sell-off is a consequence of the bonds losing the investment grade rating which means many institutional investors need to get rid of them,” David Cohen, a strategist at brokerage Corredores Asociados said in a phone interview in Bogota.

Moody’s also cut subordinated bonds from Banco Davivienda SA to Ba2, or two levels below investment grade, from Ba1 with a negative outlook. It lowered Banco GNB Sudameris SA’s subordinated foreign debt to B1 from Ba2 with a stable outlook.

To contact the reporter on this story: Andrea Jaramillo in Bogota at ajaramillo1@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net

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