Danske Says S&P Rule Change Triggers Bond Buyback Above Par

Danske Bank A/S (DANSKE) offered to buy back its bond due 2037 at a price above par after Standard & Poor’s changed its calculations in a move that wiped out the security’s loss-absorbing content.

Denmark’s biggest bank said today it will redeem the bonds at 101.50, plus accrued interest, in a buyback it expects to close in November. Copenhagen-based Danske said it will pay 100 percent to holders who don’t accept the offer.

“It’s an easy offer for investors,” Christian Hede, an analyst at Jyske Bank A/S, said by phone. “They’re being asked whether they want 100 or 101.50. I thought it would be a bit more complicated.”

Since Danske issued the $1 billion bond in September last year, S&P adjusted its capital definitions, undermining the equity content of a note that Danske has paid investors a 7.125 coupon to hold. Steen Blaafalk, head of group treasury at the bank, said in May Danske faced a Jan. 1 deadline to decide whether to call the bond. The bank could also have opted to buy the bond back at par or to swap it for another security, according to Hede.

The bond hit a low of 100.5 on June 24 amid concern the bank would risk angering investors and buy the security back at par. The bond traded at 101.50 at 10:05 a.m. in Copenhagen, according to Composite Bloomberg Bond Trader prices.

‘Market Price’

“The price is more or less market price at the moment,” Hede said. “It is market price because people were afraid of a 100 call. It’s a bit of a self-fulfilling prophecy that it approaches 100.”

Danske said today it doesn’t expect its ratings to be affected by the repurchase. The bank has an issuer rating of A-with a stable outlook at S&P. Moody’s Investors Service rates the bank Baa1 with a stable outlook.

Per Tornqvist, an S&P bank analyst, said in July that excluding the bond from Danske’s capital wouldn’t jeopardize its issuer rating. The lender would still have “adequate” risk-adjusted capital, he said.

To contact the reporter on this story: Frances Schwartzkopff in Copenhagen at fschwartzko1@bloomberg.net

To contact the editor responsible for this story: Tasneem Brogger at tbrogger@bloomberg.net Christian Wienberg at cwienberg@bloomberg.net

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