Danske 2037 Bond Gains as Call Option Fades: Copenhagen Mover

The yield on Danske Bank A/S’s bond maturing in 2037 -- issued last year to build capital and improve credit ratings -- hit its lowest in Copenhagen in more than a month on bets the lender won’t redeem the debt early.

The yield on the benchmark bond fell to 7.025 percent, its lowest since April 2, according to data compiled by Bloomberg. It traded as high as 7.1103 last month, the data show.

Since Danske issued $1 billion in the 2037 bonds in September, Standard & Poor’s has said it may adjust some of its capital definitions, meaning the bonds would no longer provide the same loss-absorbing function Danske had anticipated. Though the bank reserved the option to call the debt in such an event, it’s unlikely to do so and risk angering investors by disrupting their cash flows as it prepares for even bigger debt issues.

“If you make investors unhappy over $1 billion when you need to issue 43 billion kroner ($7.4 billion), it might easily become a bad call,” Jyske Bank A/S analyst Christian Hede said. “Danske is very much aware of that.”

S&P said April 18 it may raise Danske’s credit rating if it achieved a risk-adjusted capital ratio “well above 7 percent” and showed a sustainable improvement in its earnings capacity. The rating company said the bank’s RAC ratio was 8.25 percent at the end of the year, compared with 6.5 percent in 2011.

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